Developing World Healthcare Blog

Georgia on My Mind

Georgia Healthcare Group (GHG) listed on the London Stock Exchange this past November.  The “Georgia” is the country that borders Russia, not the state that borders Florida and South Carolina. The company is the largest healthcare services provider in the country, operating 35 hospitals, and 10 ambulatory clinics (77% of revenue/95% of EBITDA), plus the leading private health insurer (23% of revenue/5% of EBITDA). As companies and stocks go, GHG is small: market cap is less than US$300 million, and Bank of Georgia (parent company) owns 65%.

 

What Makes Georgia Interesting?

The country and company are interesting because of their unique characteristics relative to other countries in the developing world. First, the private sector dominates the provider market with 84% of the country’s hospital beds. Second, the government implemented a universal health insurance (UHC) program in 2013 (92% of the population covered) that caps annual per-capita expenditures (15,000 GEL or lara), but allows providers to set their own prices. Third, there are noteworthy service gaps (described later) despite an apparently “adequate” supply of hospital beds and an oversupply of physicians (highly unusual.)    

 

Georgia is a former Soviet Republic with a population of 4.5 million. The country became independent in 1991, struggled for over a decade, and started pursuing pro-Western policies in 2003. Real GDP grew at a 5.3% clip during 2005-2014. Government finances are in good shape with external public debt at 27% of GDP. The World Bank, Heritage Foundation, and other groups have given the country good scores for ease of doing business, economic freedom, and minimizing corruption.

 

Georgia’s Healthcare System

Healthcare represents 5.8% of GDP. Spending on healthcare services grew at a 14% compounded rate during 2011-2014 with 2013’s implementation of the UHC a significant driver. Any provider, private or public, can participate. The program covers basic outpatient elective services, most emergency care services, and elective inpatient services, subject to certain limits. Coverage is 100% for basic outpatient services (office visits, diagnostics, etc.) through monthly capitation payments (which haven’t changed since 2013.) Emergency care is 100% covered subject to a per-episode cap of 15,000 GEL (rarely exceeded.) Elective inpatient procedures require government approval prior to treatment, subject to a maximum two-month waiting time to obtain approval.

 

Out-of-pocket spending remains the dominant source of funding (59% of spending in 2014, down from 70% in 2012) because of the UHC’s approach to reimbursement for outpatient specialist visits and elective inpatient procedures. Providers set their own prices, but the reimbursement from the government varies by the type of service and the location of the facility:

 

  • For outpatient specialist services, the clinic will bill the patient for 30% of the cost and request payment prior to the provision of the treatment or service. The remaining 70% of the price is accounted for as part of the monthly capitation payments received by the particular clinic, and no further payment is obtained from the state.

  • For elective inpatient procedures, the government pays 70% of the average of the lowest 25th percentile of the price charged by healthcare facilities for the same service nationwide. The patient pays the balance: 30% of the calculated amount plus any difference in the price for the service at that facility.
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    For GHG’s healthcare services business, government health insurance programs represent 76% of revenue, out-of-pocket is 18%, and private medical insurance is 6%. Private medical insurance, held by 10% of the population, supplements the UHC’s basic coverage.

     

    The Outlook for Georgia Healthcare

    The outlook for the country’s healthcare system is good as long as the government’s finances remain sound. Healthcare spending represented 9.3% of the government’s budget in 2015 with the UHC accounting for 67% of the total. The UHC budget for 2016 is GEL 885 million, up 9% from GEL 813 million in 2015.

     

    The company expects universal care to drive continued increases in outpatient utilization, and the renovation of additional hospital beds (36% of the country’s beds are “Soviet era”) to drive increases in inpatient utilization. The closing of service gaps (several listed below) should help too.

     

    Service gaps of note: 

  • No pathology laboratories (all samples sent abroad)
  • No “suitable” IVF center or genetic laboratory
  • No bone marrow transplants
  • Only 18 MRIs (Iceland has 7 for 300K)
  • Only 1 PET CT (Iceland has 11 for 300K)
  • Zero gamma knives (Los Angeles alone has 4!)
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    The main risks facing the company are whether demand will fill new capacity (possibly as much as a 20% increase in two years) and whether private medical insurance will continue to grow. Premiums in the company’s medical insurance business dropped by 21% in 2015 as some enrollment transitioned to the UHC from the legacy State Insurance Program (a private/public insurance program.) The health of the government’s finances is an ongoing concern.

     

    A Final Thought

    Finally, here is something for those of you still thinking of that “other” Georgia:

    https://www.youtube.com/watch?v=Thls_tMuFkc