Transformative change: Reforms have resulted in significant gains, although mounting costs remain a concern

Although the health system faces an array of challenges, including human resource shortages, disparities between regions and rising costs, significant gains in the quality and accessibility of care have markedly improved the wellness of Turkey’s population. Moreover, as the Turkish economy becomes more service-oriented, health companies and investors are well positioned to capitalise on growth opportunities in private hospital development, pharmaceuticals production and medical device manufacturing.

Progress

Turkey’s public health progress is reflected in the numbers. From 1970-2009, the country’s life expectancy at birth for both men and women rose from 50 to 75 years – the most rapid increase among all countries in the Organisation for Economic Cooperation and Development (OECD). Meanwhile, the country’s maternal mortality rate dropped from 208 to 19.4 deaths per 100,000 live births between 1974 and 2008, meaning the nation achieved the fifth UN Millennium Development Goal three years ahead of schedule.

There has also been a dramatic decline in the prevalence of communicable diseases, partly due to a rise in the national vaccination rate from 67% in 1995 to around 97% in 2010. Between 1993 and 2012 the incidence of tuberculosis per 100,000 people more than halved, falling from 50 to 24. Between 2000 and 2011 the incidence rate of malaria dropped by 75% to less than one per 100,000 people. Through its malaria eradication programme, the Ministry of Health (MoH) plans to eliminate the disease by 2015.

HTP

Many of these advancements have occurred within the framework of the Health Transformation Programme (HTP), an initiative launched by the MoH in 2003 with support from the World Bank. Designed to increase the quality, efficiency and accessibility of Turkey’s health system, the HTP has introduced a wide range of structural reforms, including a family practitioner scheme and a centralised insurance programme covering virtually the entire population. In addition, the HTP has streamlined public hospital administration and enacted (to the dismay of some pharmaceuticals firms) regulations reducing drug costs. As a result of such measures, the programme is credited with reducing hospital waiting times while simultaneously increasing the rate of physician consultations per capita in Turkey from 1.7 in 1994 to 7.7 in 2011.

These reforms promoting accessibility have been accompanied by an increase in spending. As a percent of GDP, health expenditure in Turkey rose from 2.5% in 1995 to 6.7% in 2010, as indicated by World Health Organisation (WHO) figures. According to estimates from the Economist Intelligence Unit, by 2016 health care spending per head in the republic will be 60% higher than in Romania and Bulgaria, but 25% lower than in Poland and Hungary.

Challenges

Turkey’s health indicators reveal some weaknesses, including what some describe as “overuse” of the system. Given that the state accounts for some 70% of health spending, mainly through social security outlays, this has raised questions about long-term financial sustainability. “Now that widespread coverage has been achieved, rapidly increasing costs represent the most pressing challenge. Greater use of complementary health insurance will be necessary to ensure sustainability of the sector,” Dr Haluk Özsarı, the general director of Istanbul University Hospitals, told OBG. “There are several partial solutions to this problem, including increasing the efficiency of hospital administration through greater adoption of information technology solutions.”

Further, while spending on the sector has increased, the country’s total expenditure on research and development (R&D), which is critical for the growth of industries with high value-added potential such as pharmaceuticals and medical device manufacturing, was only 0.86% of GDP in 2011 compared to an OECD average of 2.3%. “It is important to curb costs, but it is also essential to channel the resources we do have to basic and applied research in health sectors that can generate returns over the long term,” Dr Özsarı said. What is more, lifestyle and chronic illnesses are on the rise. According to the Turkish Diabetes Foundation, the number of Turks with diabetes has more than doubled over the past decade, with some 10m citizens currently having diabetes or at risk. Local research has demonstrated that nearly half of Turks with type 2 diabetes, or adult-onset diabetes, may not be aware that they have the condition. As of 2010, the obesity rate among Turkish adults was 16.9% – much lower than in the US (28.1%) but higher than the OECD average (15%). Moreover, evidence suggests that around 25% of Turks have “clinically significant” cholesterol levels, while roughly one-third of adults suffer from hypertension.

On the bright side, figures from the MoH, which enacted a smoking ban in 2009 for enclosed public places, indicate that the rate of smoking in the republic has dropped from 33.4% to 27.1% in the last six years.

Help Wanted

Many health experts have also raised concerns about human resource shortages, which have been exacerbated by rising demand. Between 2000 and 2009 the number of practising doctors per 1000 in Turkey increased at a robust average annual rate of 5.4%. However, as of 2010 Turkey had 1.7 practising doctors per 1000 people, well behind the OECD average of 3.1. As a result, in segments such as oncology, doctors in some municipalities are reportedly treating 60-70 patients per day.

Health analysts also estimate that an additional 200,000 nurses are needed to meet current demand. A recent survey by Isparta State Hospital found that some nurses are leaving the profession due to “unsatisfactory working conditions” – a conclusion shared by Dr Özsarı, who added that health professionals in general experience unsatisfactory conditions and need to begin earning more generous salaries. Others find fault in the education system. “In large part, Turkish hospitals have experienced nurse shortages because our schools do not provide enough dedicated training programmes,” ‹rfan Güvendi, general director of private hospital chain Lokman Hekim Hastanesi, told OBG. “Although this has become a global issue, we must devise local solutions to address this challenge quickly, especially in underserved areas.”

Relief

Personnel shortages have also affected the private sector, with some blaming government regulations. To curb the flight of medical staff from state institutions, where doctor-patient ratios are the most imbalanced, the MoH enacted new rules in 2008 limiting the number of doctors permitted to work at private hospitals. However, in mid-2012 the MoH announced that these restrictions would be eased under a new scheme that would send 20% of doctors who pass the Turkish Medical Specialisation Examination (TUS) to private facilities in 2012, followed by 30% in 2013. Further relief came in 2012 when MoH amendments came into force allowing private hospitals to hire foreign specialists. Under the new rules, which do not apply to dentists, pharmacists, nurses or midwives, foreign health workers can be privately employed after demonstrating their medical qualifications and passing a Turkish language exam. Though some have claimed that this amendment may bring under-skilled labour into the sector, most analysts regard the measure as an important step in overcoming the doctor deficit and in creating a more diverse workforce with the language skills needed to support international patients.

“By allowing more foreign health professionals to work at private hospitals, the new employment rules will bring more speakers of Arabic and Asian languages into the sector, thereby creating a friendlier environment for medical tourists from a wider range of countries,” Dilek Kalemci, a coordinator for International Patient Services at TOBB ETÜ Hastanesi, told OBG.

Private Provision

There is little debate that the private sector is playing a critical role in meeting demand. As of mid-2012 there were some 530 private hospitals in Turkey (compared to 970 state facilities), around 30% of which were located in Istanbul. In addition, MoH figures indicate that private hospitals provided 30,000 beds and employed 24,000 physicians in 2012, with the latter number expected to rise to 50,000 by 2023.

Indeed, market liberalisation is something the government has encouraged for many years. Under the HTP, the MoH implemented new regulations in the mid2000s allowing hospital patients to use the national social security system to help pay for private treatment. Partly as a result, the number of private hospital inpatients in Turkey rose from 556,494 in 2002 to a little over 3m in 2011, while the number of private hospital visits over the same period increased more than ten-fold, jumping from 5.7m to 59.07m, according to data from the MoH.

Although new regulations passed in the late 2000s, including caps on medical fees and rigid licensing requirements, have made the business environment slightly more restrictive, large private health groups in particular have flourished. These include Universal Hospital Group, Acıbadem Healthcare Group, Medicana Health Group, Medical Park and Memorial Health Group, all of which have expanded their geographic presence from Istanbul to cities nationwide.

International investors

Many of these groups have attracted significant investment interest. In 2011, for example, an investor consortium including Dutch pension fund administrator PGGM, Hong Kong-based ADM Capital and the World Bank’s International Finance Corporation purchased a 26% stake in Universal Hospital Group for $140m. In January 2013 the consortium initiated steps to exit its equity investment in Universal by hiring Istanbul-based Daruma Corporate Finance to begin informal talks with potential buyers.

In January 2012 US-based private equity firm Carlyle Group purchased a 40% share in Medical Park Group – an investment followed by announcements that the hospital chain was considering an initial public offering and that it had plans to invest $300m to open new facilities in Istanbul, Ankara and Izmir. Later in the year, Carlyle indicated that it planned to sell its stake in Medical Park during the first half of 2013, with US-based TPG Capital and UK-based CVC Capital Partners said to be among the firms interested. Expressing his own personal views, Eren Sar›çoğlu, the vice-president of corporate private equity at the Carlyle Group, told OBG, “Turkey’s attractiveness as a destination for private equity investment has been growing lately, a trend that will continue with the upgrade to the country’s sovereign debt rating. The health sector in particular is an attractive target due to the growing local demand for medical services.”

PPPS

 Another source of investment activity is the emerging market for public-private partnerships (PPPs). Key laws governing health PPPs include Article 47 of the Constitution, which permits the government to contract with private firms for public service delivery. While the MoH oversees project selection, the Treasury assists in land procurement and the Supreme Planning Board provides final project confirmation.

Though some have high hopes for PPPs, others argue that the legal environment remains too opaque. “The regulatory framework for health PPPs in Turkey needs to be clarified if we are to expect greater investment interest,”

Sar›çoğlu said.

Nonetheless, as of late 2012, 18 health PPP projects were under way nationwide. One notable example is the €440m Kayseri Integrated Health Campus – the first health PPP ever launched in Turkey. As of writing, the winning consortium (YDA İnflaat Sanayi Ticaret and Inso Sistemi Per Le Infrastrutture Sociali ‹fl Ortakl›€›) was concluding funding negotiations with Garanti Bank, ‹flbank and other financial institutions. After the financial close for the Kayseri PPP is reached, construction will proceed for three years, followed by a 25-year concession phase. Once operational, the 385,000-sq-metre campus will boast three hospitals holding over 1500 beds, as well as a 140,000-sq-metre commercial area. Most importantly, the Kayseri facility will enhance health provision in one of the country’s underserved regions.

Another project making headlines is the $1bn Ankara Etlik Integrated Health Campus – the most expensive health PPP Turkey has launched to date. Once it opens up the Etlik campus will house over 3000 beds spread across 11 specialised hospitals and units, including facilities dedicated to women’s health, paediatrics, physical therapy, oncology, rehabilitation, cardiology and psychiatry. Meanwhile, Adana, Gaziantep, Izmir and Eskisehir are also hosting health campus PPPs, all of which began receiving bids in 2012.

Health Tourism

Growth in the hospital market comes amid a significant increase in health tourism (see Tourism chapter). According to the MoH, around 200,000 foreigners came to Turkey for treatment in 2011, making the republic one of the world’s top 10 health tourism destinations. As indicated in a recent report produced by the Istanbul Chamber of Commerce, this has not only benefitted health care providers, but also hotel owners, tour operators and retailers, all of which have seen a resulting increase in customers.

Turkey’s proposition to health travellers is simple: visit the country’s medical facilities to benefit from high-quality service at relatively low prices. As of January 2013 Turkey had the third highest number of hospitals accredited by Joint Commission International (JCI) in the world. At the same time, figures from the Foreign Economic Relations Board of Turkey indicate that a heart bypass surgery in Turkey costs between $11,375 and $15,000; by contrast, this operation in the US can run up to $129,750. Moreover, whereas knee and hip replacement surgeries in England and Israel cost between $15,000 and $21,000, these services in Turkey fall between $10,750 and $11,200. “The fine balance Turkey’s health system has achieved between quality and price is a strong sell in the global market,” Kalemci told OBG. “This is particularly true when costs are escalating rapidly in developed countries.”

To further promote the health tourism sector, the MoH has opened a number of local health counselling centres for foreign patients, and, according to Kalemci, even begun paying for health tourist flight fees. Perhaps most significantly, the MoH has announced tentative plans to establish several free health zones in Turkey by 2014. Designed specifically, but not solely, to attract foreign customers, these areas are expected to be developed near the country’s international airports and to feature only private hospitals.

It is hoped that the free health zones will garner foreign investment, mainly through a wide range of incentive schemes. According to early reports, international companies operating in the zones will be exempt from many fees, including taxes on corporate income, value-added activities and social security premiums. Bureaucratic red tape will be further reduced by new rules allowing foreign health professionals to work in the zones without having to obtain a work permit from Turkish authorities and without having to demonstrate proficiency in Turkish.

Medical Device Manufacturing

As Turkey’s health sector has grown, so too have medical device imports. As of 2011 the country’s medical device manufacturing market was the largest in the region and ranked among the top 30 globally. From 2010-11, medical device imports rose 17.6%, with dental products experiencing a year-on-year growth rate of 57.8% to reach approximately $132.3m, according to figures from Espicom Business Intelligence.

While growth in the medical device market is good news for foreign manufacturers, it represents a challenge for the Turkish economy, which is contending with a persistent trade deficit. According to data compiled by Deloitte, as of 2008 around 85% of medical devices used in the republic are imported from abroad, with the US and Germany accounting for the bulk of sales (30.7% and 19.5%, respectively).

Nevertheless, recent trends suggest that Turkey’s 1000-plus device manufacturers are beginning to enhance their export potential. In 2012 local companies in the sector exported medical products worth some $600m, up from $187m in 2009. In part, this reflects increased local compliance with international standards, as well as the growing realisation in global markets that Turkish manufacturers can provide good quality at low cost.

Outlook

The structural transformation of Turkey’s health system has improved the lives of citizens nationwide, as evidenced by the fact that children are now three times more likely to survive past the age of five than in 1990. Along with the HTP, another success story is the Family Medicine Model, which saw average patient satisfaction rates in provinces using the system rise from 69% in 2004 to 84% in 2010.

To some, Turkey’s rapid progress in health reform suggests that the country might avoid the systemic issues that have led to skyrocketing costs in more developed nations. However, the rising financial burden on the public sector – reflected in the fact that the state now accounts for 73% of health spending, up from 63% in 2000 – suggests that ensuring financial sustainability in the coming years will be challenging indeed.

Clearly, efficiency gains in health administration will be required, as well as concerted efforts to educate the public about healthy living through preventative care awareness campaigns. As the nation seeks to meet the needs and expectations of a growing and increasingly wealthy population, the private sector will have to assume an expanded role. Indeed, this process is well under way, highlighted by the ongoing development of “free zones” and major private health campuses. “Ultimately, continued health care progress in Turkey will require active participation from the private sector, which can share cost burdens, drive innovation and promote international best practices,” Dr Özsarı said.

As infrastructure development projects in the health sector move forward, and as domestic hospital groups seek to maximise profits through economies of scale, opportunities will also emerge for investors that can supply capital. Now that Turkey has secured its place among the emerging market leaders in public health, the country is seeking to leverage the system as a platform for economic growth.