Demand on healthcare services in Georgia is largely driven by rising prevalence of age-associated diseases and improved accessibility, supported by increased government spending, reads Georgia's Healthcare Sector Overview published by Galt & Taggart, one of the leading investment banking and investment management services company in Georgia.
According to the report, "public health spending increased almost 3x times to GEL 2.0bn over 2014-22, reducing share of out-of-pocket payments from 66% to 51% of total health expenditure in Georgia. This ratio is still high compared to EU (16%) and peer EM countries in the region (36%). The government plans to reduce share of out-of-pocket health expenditures to 30% of total by 2030.
Hospital sector in Georgia shows low efficiency. Number of hospital beds stood at 5.6 per 1,000 people in 2021, above peers and many high-income countries globally. With oversupply of hospital beds, occupancy rate was low even in the pandemic years (55% in 2021).
Utilization of primary healthcare is still low in Georgia, despite significant improvement in accessibility over the last decade.
Outpatient contacts per person stood at 4.0 in 2021 in Georgia vs 7.0 in EU.
Georgia faces oversupply of physicians and undersupply of nurses, with only 1 nurse per physician in Georgia vs 2-5 nurses in European countries. As a result, Georgian doctors are 3 to 5 times less productive than peers in terms of patients treated annually.
The profitability of the healthcare sector has improved in 2021 (boosted by increased government spending on the covid-19 management) after continuously deteriorating for several years. EBITDA margin reached 17.1%, while average net profit margin hit 14.6% in 2021. With introduction of DRG, profitability margins are expected to stabilize on healthy levels in the medium term.
The government implemented a new funding model of UHC - Diagnostic Related Grouping (DRG). DRG model determines reimbursement based on patient’s diagnosis and various other factors (e.g. age, gender, health complications, etc.).
The DRG model is expected to enhance efficiency and sustainability of healthcare system, increase transparency, create healthy competition between hospitals, boost consolidation and reduce market fragmentation.
DRG model comes with its risks. If the incentives for cost reduction are too strong, without sufficient capacity of quality control, DRG can lead to reduced quality of care. Furthermore, it can slow down the adoption and use of technological innovations and create deficiency of certain medical services on the market," reads the key findings of the report, which continues as follows:
Increased government spending since 2013 boosted healthcare expenditures in Georgia
State healthcare spending increased almost 3x times GEL 2.0bn over 2014-22. Increased government funding and development of private insurance sector reduced share of out-of-pocket spending in total health expenditure by 15ppts to 51% over the same period. Out-of-pocket payments (mainly spent on medicines) are still high in Georgia compared to EU (16%) and peer EM countries in the region (36%). According to Vision for Developing the Healthcare System in Georgia, the government aims to reduce share out-of-pocket health expenditures to 30% by 2030.
UHC accounted for half of total GEL 2.8bn revenue, generated by the private healthcare sector in 2022.
New funding model of hospital and emergency services – Diagnostic Related Grouping (DRG)
The government introduced a new funding model of UHC - Diagnostic Related Grouping (DRG) in January 2023. DRG model determines reimbursement based on patient’s diagnosis and various other factors (e.g. age, gender, health complications, etc.). The DRG model is expected to enhance efficiency and sustainability of healthcare system.
Advantages of Diagnostic Related Grouping (DRG):
Creates healthy competition between hospitals – new hospitals do not have unfair advantage in tariffs anymore.
In medium and long term, increased profitability margins expected for the sector, due to increased government spending and sector consolidation.
Dynamic pricing that follows costs in real time.
Risks of Diagnostic Related Grouping (DRG):
If cost reduction incentives are too strong, DRG can lead to reduced quality of care without sufficient capacity of quality control.
DRG may not provide sufficient incentives to encourage the adoption and use of technological innovations in health care.
May create deficiency of certain medical services.
Georgia has one of the highest levels of private ownership of hospitals, ahead of many developed and EM countries
Healthcare industry in Georgia is dominated by private sector. 86% of hospitals are owned by for-profit private entities, while remaining 14% (mostly specialized hospitals, such as psychiatric, tuberculosis and penitentiary hospitals) are still operated by public institutions.
Number of hospital beds continue rising, reaching 20.6k beds (5.6 per 1,000 people) in 2021
Privatization aimed at eliminating excess hospital beds, a Soviet Union legacy, and renovating the remaining. As a result, the number of hospital beds decreased to 3.0 beds per 1,000 persons in 2012. However, after replacement of old facilities, sector moved to expansion phase, reaching 5.6 beds per 1,000 people in 2022 (or 20.6k in absolute terms).
Georgia’s bed occupancy rate in hospitals stabilised at average 51% over 2013-20, reaching 55% in 2021 due to increased Covid hospitalisations
Georgia’s bed occupancy rate increased to 63% in 2012, supported by consolidation in the sector. However, with new hospitals built, bed occupancy rate dropped to 50% in 2013 and remained flat since, until reaching 55% during the covid-19 pandemic. Occupancy rate in Georgia is far below EU (77%) and CIS average (83.4%) indicators, showing inefficiency.
Tbilisi, Imereti and Adjara have highest number of beds relative to population.
Despite the improvement, outpatient facility utilization is low in Georgia
Primary healthcare is highly effective and efficient way to reduce pressure on hospitals, prevent/manage communicable and non-communicable diseases and reduce share of complicated/fatal cases.
Georgia posted 4.0 outpatient contacts per person annually in 2021, significantly lower than EU and neighbouring countries’ average indicator. Insufficiently developed primary care facilities is one of the reasons behind low use of outpatient services, which forces patients to head directly to hospitals. High level of self-treatment with over-the-counter drugs is another hurdle for primary service providers.
Outpatient contacts per person is at adequate level in Tbilisi, but very low in other regions due to underdeveloped outpatient facilities.
There is inadequate distribution of medical staff in Georgia, with oversupply of physicians and undersupply of nurses
Georgia has one of the highest and growing number of physicians among peers, reaching 6.1 per 1,000 people in 2021, twice as high as OECD average. Meanwhile, there is lack of nurses, with only 1 nurse per physician in Georgia vs 2-5 nurses per physician in European countries. The trend is expected to continue as Georgian education system keeps admitting excessive number of students on one-cycle and residency medical programs, while admission of students on nursing programs in VET institutions is dropping.
