Healthcare Market Forecast

Healthcare provision, in general, will remain poor in Russia. Significant disparities remain between the more populous and economically affluent West and the poorer and rural East. Moreover, a critical lack of funding will continue to hamper the provision of care. State expenditure will pick up as the economy gradually recovers from recession, although we anticipate a shift towards greater private spending.

In December 2018, Russian President Putin announced that the government would support economic growth above 3% from 2021 through boosting domestic industry, of which healthcare is the primary area for development.

Although, the Russian cabinet pledged to allocate funds generated from the increase in VAT rate from 18% to 20% in 2019 towards the healthcare sector.

Between 2018 and 2023, we forecast that health expenditure in Russia will increase at a compound annual growth rate (CAGR) of 5.3% in local currency terms and 3.2% in US dollar terms, from RUB5.72trn (USD91.0bn) in 2018 to RUB7.41trn (USD106.5bn) in 2023. Over our extended 10-year forecast period, we project that healthcare expenditure will reach RUB9.38trn (USD122.0bn) in 2028, posting a local currency CAGR of 5.1% and a US dollar CAGR of 3.0%. As a percentage of GDP, healthcare expenditure was 5.7% in 2018 and is forecast to fall to 5.5% by 2028. Per capita, healthcare spending was USD632 in 2018 and is set to increase to USD863 by 2028.

Russia’s healthcare market will continue to be undermined by a lack of government financing. Public healthcare expenditure growth has closely mirrored the country’s weak economic performance in recent years, with growth in real terms in negative territory between 2013 and 2016. On the back of the country’s gradual economic recovery in 2017 and 2018, government healthcare spending has returned to positive growth in real terms, however, concerns remain over the insufficient funding levels. An ageing population, low birth rate, a high prevalence of alcohol dependence and a growing HIV epidemic are producing a demand Moreover, although Russia spends more on a per capita basis than many of its emerging market peers around the world, numerous indicators point to inefficient use of these funds. In the most recent Bloomberg Health-Care Efficiency Index (2018), which ranks healthcare systems based on a combination of each country’s life expectancy and healthcare expenditure, Russia ranked 53rd out of 55 countries. Although Russia has higher healthcare expenditure than some of the other markets in the Index, including Romania, the UAE and even China; however, Russia had the worst life expectancy, highlighting its particularly poor use of funds.

This lack of public healthcare finances has led to a shift towards the private healthcare sector, exacerbated by President Putin’s signing of the law on the budget for the Federal Mandatory Insurance Fund. This outlined an increase in employer contributions, leading to an acceleration of this shift towards private coverage. We note that private coverage tends to be concentrated in the more affluent urban areas, and the strong growth trajectory of private healthcare spending will provide a growth opportunity for healthcare service providers and drugmakers alike.

While the short-term outlook for Russia’s public healthcare sector remains repressed, we note that there have been a number of recent developments that pose upside to our market outlook:

 In July 2018, the Russian government announced plans to increase VAT from 18% to 20%, with additional revenues set to be funnelled towards financing infrastructure, healthcare and education. While the exact allocation of additional funds between these sectors is unknown, it is reported that this increase will generate annual revenues of RUB600bn (USD8.79bn).

 In July 2018, President Putin announced that approximately RUB1trn (USD14.6bn) will be allocated to the construction and refurbishment of oncology centres until 2024. The government hopes to increase the rate of early diagnosis for cancer from the current 30% to 50-70%.

In August 2018, the Ministry of Health proposed a plan to spend RUB2.825bn (USD41mn) from the federal budget between 2018 and 20204 to improve the Russian population’s lifestyle. Preventative healthcare campaigns such as this have been proven to considerably reduce the burden placed onto the healthcare system by reducing chronic disease prevalence.

In January 2019, the Russian Ministry of Health revealed that healthcare tourism had expanded considerably in recent years:

Froma reported 20,000 foreign patients in 2016, this rose to 120,000 in 2017 and a reported 300,000 in 2018. In May 2018, President Putin ordered the government to increase healthcare tourism revenues fourfold from 2017, up to USD1bn.

Russia’s prescription medicines market will continue grow healthily over our forecast period, driven by an increasing burden of disease and greater access to healthcare services. The innovative medicine segment will continue to be beset with regulatory issues and the impact of increasing state control. This will allow the generic medicines sector to outpace sales growth in both volume and value terms, simultaneously reducing the country’s import reliance and improving medicine affordability.

Prescription drugs accounted for 62.3% of total drug sales in 2018, amounting to RUB787bn (USD12.5bn) in value terms. We expect prescription drug sales to grow at a compound annual growth rate (CAGR) of 8.4% in local currency terms and 6.2% in US dollar terms to a value of RUB1.18trn (USD16.92bn) by 2023. Over our 10-year forecast period, we expect the prescription market to grow

with a local currency CAGR of 7.6% and a US dollar CAGR of 5.4% to a value of RUB1.63trn (USD21.3bn) by 2028. By 2028, we expect that the prescription segment will account for 67.1% of the total drug market in value terms.

The government will seek to boost the uptake of cheaper prescription drugs in an attempt to meet the rising demand of a population with a significant burden of disease, particularly as the country recovers gradually from its economic recession. This will be aided by the country’s import substitution policy, which has resulted in significant investment into the country’s domestic pharmaceutical industry. Both due to the poor regulatory environment and the lack of technical expertise, the vast majority of this investment has been focused toward generic medicine production. The generic medicines sector will therefore drive growth in the prescription sector.