Russia’s private health care business looks for boost from reforms

By bne IntelliNews March 24, 2015

Ben Aris in Moscow -


Family Doctor CEO Aleksandr Shlychkov

Private health care is growing rapidly in Russia and Family Doctor Medical Clinic is one of the pioneers. Operating for over 20 years and now serving more than 230,000 clients, the company recently opened its fifth clinic in Moscow and wants to more than double that number over the next three years, especially in Russia's regions. Customers are mainly covered by the rapidly developing private health insurance business, but the clinic also caters to the increasingly comfortably-off Russian middle class looking for a better service and higher quality medical care.

The private clinic provision of healthcare could get a major fillip soon if the Russian government follows through on reforms that would allow those covered by the obligatory state health insurance system (OMS) to use their coverage to pay for private treatment. The Russian constitution guarantees total health care to all citizens, however the cash-strapped system lacks the resources to be able to fulfil that promise and the service is famously shoddy. “Оver half our customers pay using private insurance scheme and most of the rest pay in cash,” says Family Doctor CEO Aleksandr Shlychkov. “They come looking for a faster, better quality treatment.”

Family Doctor was founded in 1995 by three private investors, but like an increasing number of successful small and medium-sized enterprises it has changed hands several times since as the business developed.

Most recently the VIYM investment fund, co-headed by Andrei Yakunin, son of the CEO of Russian Railways, on behalf of its pool of investors took a “significant minority stake” in the company to finance its expansion through to 2018, with an eye to an eventual exit – probably a sale to one of the dozen or so domestic players in the sector, explains Dmitry Schuetzle, managing director in VIYM.

The chain has five standalone clinics and also operates a mobile service, which includes home visits. About 230 doctors provide GP services as well as specialising in paediatrics, gynaecology and pre- and postnatal care. “People come to us when they have their first child. And if they like the quality of the service, they come back with the second and subsequent children and other family members,” says Shlychkov, who worked as a doctor before going into business. “People in Russia today want convenient medical services and quick and professional help. The state medical system is far too slow and centralised.”

Growth of the private health insurance business underpins the growth of Family Doctor. Shlychkov estimates that 60% of his clients are covered by some sort of private insurance, another 35% simply pay in cash, and the remaining 5% are in some sort of corporate health plan.

With a drum-tight labour market, Russian companies are becoming more interested in retaining good employees. In the 1990s this was achieved simply by paying more money. But as the emerging middle class balloons, companies are beginning to add the kind of employee packages that you find in the West, which include things like health care, dental care and pension schemes. “Moscow has become a particularly competitive market with many companies offering similar services,” says VIYM’s Schuetzle. “But as the market is growing so fast there’s still plenty of room for everyone. The market is not mature and there are not enough quality medical services on offer to meet demand.”

Family Doctor plans to open two more clinics this year, one in Moscow has been already opened and one in St Petersburg is in process of being renovated. In general the company plans to open five more clinics over the next three years, mostly in Russia's better-off Russian regions with cities with a population of more than 1mn people.

Reform boost

The whole sector could get a huge fillip if the government goes through with plans to allow the obligatory state health insurance fund (OMS) to pay for private services. Technically this is already possible, however the amount of money on offer is way too small to interest most of the private companies. Doctors in state hospitals get a fifth of the pay that their private colleagues do and the same goes for what private clinics can charge for services provided under the state insurance programme.

“The states says it wants to make more services available to the population and consolidate what it has. The state polyclinics will continue to run, but they will specialise in things like oncology and cardio problems. The more basic general practitioner services could be provided by the private clinics more efficiently and with better quality,” Shlychkov says.

An OMS+ option has already been introduced that increases the number of services the state is willing to pay for and increases the amounts that can be charged, but the gap between what the private players want and what the state fund is offering is still wide. “OMS+ adds more services that can be provided by private clinics [using these public funds], but the initiative is not working now, as private companies still don’t understand how they can make money from it. We can sign up people via OMS+, but the cash available is still too small in order to be able to provide the services,” says Shlychkov.

With Russia's economy under pressure and 10% across-the-board budget cuts for everything except defence spending, it is unlikely the gap will be closed this year. But Russia's private clinics have enough patients to attend to in the meantime.


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