Central and Eastern Europe – medical tourism attractiveness

Healthcare in Central and Eastern Europe (CEE) is improving, with a wave of cross-border mergers and acquisitions and increasing spending. Could this region become a serious contender for medical travellers? Eilert Hinrichs, partner, and Michael Wisniewski, manager at L.E.K. Consulting, explain the evolving healthcare market in the region.

When patients visit the Váci Greens Health Centre in Hungary, they have access to what the operators claim is state-of-the art diagnostic imaging, preventive screening and outpatient care, across 16 specialist areas. The centre, in a business district of Budapest, targets corporate healthcare and private patients. Váci Greens, which started in 2017 as a joint venture between Hungarian groups Fonix-Med and Affidea, not only offers cutting-edge medical facilities, it also symbolises a broader trend in the Central and Eastern European (CEE) healthcare sector: consolidation.

Affidea acquired Fonix-Med last year, cementing its place at the forefront of the Hungarian private health sector and marking a significant milestone in Affidea’s European expansion. Similar deals have taken place across the region, such as Poland’s PZU Zdrowie, which earlier this year bought Alergo-Med, a specialist clinic in the south-east of the country, and Regina Maria buying Ponderas.

Healthcare consolidation

CEE healthcare is undergoing a wave of mergers and acquisitions amid increasing spending and a drive to improve services. With a total population of 120 million, the 16 countries in the region present enormous opportunities for both healthcare providers and investors.

The root of the consolidation in CEE is the fragmented nature of the market, a legacy of the former communist system. When CEE states such as Poland, Hungary and Romania split from the Soviet bloc in the late 1980s and early 1990s, healthcare services were hospital-based and inefficient.

Private healthcare providers identified an opportunity to develop community and clinic-based offerings. The early medical entrepreneurs were local doctors who discovered that patients were prepared to pay for services in medical areas underprovided by the public sector. Others were larger groups who began to offer a range of services, primarily those underprovided by the public systems.

Expanding private care across the region

As private care expanded across the region, governments began to reimburse the private sector, providing access to more funds. Healthcare approaches began to diverge. Slovakia, for example, adopted private insurance, and countries that joined the European Union gained better access to finance.

The shortcomings of state-run healthcare systems in CEE were laid bare. As patients demanded improvements, another wave of providers emerged, with business models that played on inefficiencies of state services.

Up until that point, private providers had been centred in local communities and were fragmented. Care was paid for by a mix of public, out-of-pocket and nascent insurance funds, and providers had been set up with local or borrowed funds rather than parachuted in by foreign investors.

Attracting foreign healthcare groups

Foreign healthcare groups began to pay attention, seeing opportunities in the growing demand for resources that required access to more capital and know-how than existed in CEE countries. In dialysis, for example, Western groups took over rundown public units at hospitals and acquired inefficient and cash-strapped local independent groups to form networks.

Consolidation continued and another round was prompted by a new type of healthcare customer: the corporation. With state-run healthcare still ineffective and often poor quality, multi-nationals, banks, insurers, telecom groups and other white-collar enterprises became increasingly keen to offer simple and efficient primary healthcare services to their employees. Subscription-funded outpatient services and clinics sprung up to meet demand, merging to serve their customers on a nationwide basis.

In Poland, for example, Mid Europa Partners fused several providers to create LUX MED, which would go on to make further targeted acquisitions under Bupa’s ownership. In Romania, Regina Maria emerged as a consolidator across multiple medical disciplines.

Healthcare territory grab

As private healthcare services proliferated, some medical specialties approached saturation. In response, regulators and national payors started limiting the growth of publicly funded provision, ushering in a new motivation for consolidation: territory.

Knowing that competitors would struggle to compete against incumbents, providers acquired to grab space. Specialities included diagnostic imaging, dialysis, interventional cardiology, stationary rehabilitation and radiotherapy. Businesses did not have to be profitable, they just had to be first.

Significant opportunities ahead: international quality

A more recent phase of consolidation in the CEE has stemmed from less tangible, but nevertheless very important, factors such as quality of care, protocols and brands.

Healthcare networks have started to implement care protocols, establishing medical boards and creating international affiliations with reputable centres of excellence. Some have grown large enough to be seen as centres of excellence in their own right, such as Affidea. They have also started to pay closer attention to patient satisfaction.

Hub-and-spoke healthcare concepts have started to emerge, such as by American Heart of Poland, Regina Maria and Diagnostyka. Again, the thinking comes from the West, where these trends are well-established, and they have been stimulated in the CEE by foreign investors making acquisitions or consolidating existing market segments.

With the consolidation and resulting enhancement of healthcare services in CEE, many countries that were once a source of medical tourism clients are becoming a destination for patients seeking savings on their healthcare costs.

This is a summary of a more detailed article on CCE healthcare, published in Healthcare Markets International (HMi). HMi is the latest journal from business intelligence provider LaingBuisson, covering analysis of acute and primary healthcare services markets operating around the world.