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Getting to grips with Russia’s healthcare market

As a non-Russian, trying to understand the complexities of the multiple overlapping levels of Russia’s healthcare system can be baffling at times. Information is often inaccessible or data simply doesn't exist.
However, in this article I will try to explain the basics and argue that with Russia emerging as a key strategic market for the pharmaceutical industry, it is increasingly relevant to gain such an understanding. With potentially far-reaching changes to the nation’s healthcare delivery looming large on the horizon, keeping up to date will also be critical. 

The basics – what you need to know

In other emerging markets such as Brazil and Indonesia, the opportunity for Western branded pharmaceuticals is often greatest in the private sector, which is the destination of choice of more affluent patients able to afford originator brands.  In Russia, due to its Soviet legacy, the private sector barely exists, making up less than 5% of the value of the market.  As a result, super-affluent Russians often elect to seek healthcare abroad, as medical tourists.

This means the burden of healthcare provision for the masses falls largely on the public sector, which operates on three levels: federal, regional and municipal. The budget for different parts of the healthcare system is controlled at each of these levels. Overall, healthcare policy and the national healthcare budget are controlled at the federal level. Funding for the ‘sevennosologies’ program, which started in 2008 and provides free treatment to about 77,000 patients with extremely high cost chronic diseases,including haemophilia and multiple sclerosis, is at this level. 

However the majority of healthcare is funded by the regions, which have control over healthcare facilities and – for most conditions – determine which drugs are reimbursed within their region. As there are vast economic and developmental differences between Russia’s 83 regions, healthcare provision across the country is hugely variable (and often inefficient).  Doctors are unequally distributed across the country, with 40% of specialists estimated to support less than 20% of the population. Drugs that are reimbursed in Moscow and St. Petersburg – where the country’s major treatment centres are located – are often not available in the less affluent regions. 

When considering whether or not a drug will be reimbursed, there are additional factors to take into account. All citizens are entitled to free basic healthcare services under the national insurance program, known as compulsory health insurance. While in-patients do not have to pay for drugs, the only drugs available to them are those their region decides to fund. The limits of the services to which citizens are entitled also differs by region. A minority of citizens, approximately 14 million (or 10% of Russia’s 143 million people), have some form of additional voluntary health insurance. Because few Russians opt to pay health insurance premiums of their own accord (perhaps a legacy of Soviet thinking that healthcare should be provided free of charge), voluntary health insurance is primarily corporate (paid by employers) and its scope and coverage varies depending on the individual program.  The public healthcare system is the largest provider of such privately-financed healthcare services, as well as those which are paid for by patients out of pocket.

A further layer of complexity relates to the fact that some groups of patients – primarily the disabled and war veterans – are entitled to outpatient drugs free of charge or at a discount.  However in many cases, patients still pay for drugs they are legally entitled to obtain for free because of their lack of understanding of their entitlements.  Overall, about 60% of all prescription medicines are paid for out of pocket. This proportion is even higher when it comes to the more expensive therapy areas not covered by the ‘sevennosologies’. For example only about 5% of cancer patients are guaranteed funding for their treatment; whether the remainder are able to access funding for treatment depends on what budget is left over at the regional level and varies on a case by case basis. 

Why you need to know

Despite the inefficiencies and lack of funding that prevails in large parts of the public healthcare system, the prospects for the Russian pharmaceutical market are generally considered to be bright.  At the end of 2012, Russia was the world’s 7th largest pharmaceutical market, and the 3rd fastest growing, with only its BRIC counterparts China and Brazil showing stronger growth overall.  With per capita drug consumption remaining low relative to the US and EU, there is clear potential for the sector to continue to grow. 

Michel Warmuth, Executive Vice President of Established Pharmaceuticals at Abbott, was recently quoted as saying “we believe that there are exciting opportunities for the further development of the Russian economy and the health care industry, in particular”.  Increasing GDP, rising consumer incomes and government strategy to transform the nation’s healthcare are the key growth drivers.  With the total value of the pharmaceutical market projected to reach 37 billion USD by 2017, the final section of this article takes a more detailed look at the government’s strategy and the impact this may have on achieving this.

What to watch out for in the future

While the government is looking to expand the role of private healthcare services in an attempt to address the current challenges, and more public-private partnerships can be expected, it remains to be seen what form they will take.

Under the government’s ‘Health 2020’ initiative, there are plans to merge the compulsory and voluntary health insurance programs and to create a unified system for all citizens with harmonized and expanded benefits. Again, at this stage there is a lack of transparency about what these benefits will entail, although some experts predict that reimbursement may become more centralized and based on Russia’s national Vital and Essential Drug list, making inclusion on this more importantand reducing the importance of a regionalized strategy.  However as in China, inclusion on national list has the drawback of subjecting drugs to increased price pressures.

Another question mark hangs over the ‘sevennosologies’ program.  Since April 2014, procurement and delivery of drugs purchased under this program has moved from the federal to the regional level.  Whilst funding remains federal for now, there has been talk of shifting the funding to the regions in recent years.  There has also been discussion of the possibility of expanding the number of diseases covered and therefore expanding the number of beneficiaries. Such a move can be expected to have major implications for pharma companies. Alongside the potential Russian ‘Health 2020’ reforms and other proposed changes to the reimbursement system, this may create opportunities for pharma. The government’s other ‘2020’ initiative‘Pharma 2020’ however may present more of a challenge, at least to international players.  Keen to reduce its dependence on imports and strengthen the capabilities of the domestic pharmaceutical industry, Russia has set itself the goal of increasing the share of domestically-produced drugs from about 20% of the market today to over 50% by 2020.  Foreign companies are pressured to offer their drugs at prices that are 15% lower than domestically manufactured analogues, and are not even permitted to participate in tenders if two or more domestic alternatives exist.  While consumer and HCP preference is generally for foreign-manufactured, branded products due to perceived superior quality vis-à-vis domestic products, this initiative is expected to increase the pressure for international players to establish a local manufacturing presence in order to compete.

In conclusion, the opportunity for pharma in Russia is growing but is likely to remain hugely complex. To leverage these future opportunities and navigate the complexities, the need for market research is elevated.
 
We are one of the largest independent healthcare market research and consulting agencies in the world. Trusted partner to the global pharmaceutical industry, we use our expertise and experience to deliver intelligent, tailor-made solutions. We provide strategic recommendations that go beyond research, helping our clients to answer their fundamental business challenges. Find out more at http://bit.ly/1ArOWkW 

2nd October 2014

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