Private healthcare boom: The search for finance

by Oğuz Engiz

The private healthcare market in Turkey is growing at an amazing speed.  This is partly thanks to the government incentives and partly, but more importantly, due to better financing options offered by both local and international financıers. The private healthcare market has grown to nearly US$10bn in 2005 from US$5bn in 1995, which is a one hundred per cent increase over the last ten years.  The strength of the Turkish Lira and the steady growth in the economy have also played a major role, but it is obvious that the growing demand for good quality healthcare services has the leading effect.

A considerable part of the private healthcare market consists of private hospitals.  The annual turnover of nearly 300 private hospitals is estimated to be US$2bn. Just fifteen of these 300 hospitals are considered A class - meaning they are of an extremely high standard. These incur 25% of all private hospital revenues. Nearly US$500mn is expected to be spent by private insurance companies and over $1bn from the government.  Private insurance companies have a portfolio of nearly 800,000 members and pay almost half of their damages to private hospitals (The rest goes to private doctors’ practices, laboratories, imaging units and other ambulatory facilities). The government, on the other hand, started to work with private healthcare facilities in the mid 1990s to procure cardiac services and has now expanded the service line to all medical departments.  Today all social security members can go to any private healthcare facility of their choice, provided that they are ready to make a top-up payment.

More investment to come

Over the last ten years, nearly 100 new private hospitals have opened with another 50 preparing to open very shortly.  The new investments have been made not only in the big Western cities but also at the farthest ends of Anatolia.  The rising demand for high quality healthcare seems to be inevitable.  The government is promoting new private investments in healthcare, as there will be no vast resources available for public health facilities, which the public dislikes in any case.  The government has declared that it is no longer willing to finance and subsidize healthcare investments out of the overstreched budget.  However Turkey recognises the need to at least, double the capacity of its healthcare;

i-to the uninsured population

ii-to the underinsured population

iii-to meet the needs of the growing population

iv-to meet the needs of the aging population

v-to meet the complicated needs of the population

It is an obvious crowding out effect that we are experiencing in the Turkish healthcare market.  It is highly likely that this situation will remain unchanged, and is expected to continue over the next ten years. The new investment incentives for the private sector also support this view. Today the government provides deductions on corporate and income tax, and exemptions on V.A.T. and other related duties and levies. In its most recent investment model, the government is offering the private sector the opportunity to invest in healthcare in partnership.  The Public Private Partnership (PPP) model, well-known in the West, seems to be a good alternative for the government to renew its old healthcare facilities mostly in the big cities.  The Ministry of Health coordinates the PPP model on behalf of the government and seems to be enthusiastic about discussing the new ideas.  While some observers suggest that the government is trying to promote foreign investment into the Turkish market, others suggest that supporters of the AKP, the ruling party, will be granted the licences. In any case, the Turkish healthcare sector will double in size over the next ten years, and this will be achieved, primarily by the private sector with the underwriting of the Turkish Treasury.

Long-term finance

When we look at the investment financing opportunities available in the market, foreign banks appear to have been more enthusiastic than local banks so far.  Some German banks, including Landes Bank Baden-Württemberg and Hypovereinsbank, have already financed some major healthcare projects in Turkey through funds guaranteed by German export financing organisation HERMES. Some British and Belgian Banks operating in Turkey are also interested in taking part in health sector projects.  Meanwhile, local banks like Denizbank have been preparing to enter the healthcare investment market.  While the banks offer practical long term financing, major medical equipment manufacturers like Siemens and GE also offer rational financing options to healthcare investors.

Investors looking for a long lasting relationship turn to the International Finance Corporation (IFC), an arm of the World Bank supporting private sector investments.  The IFC has already financed two major private hospital projects in Turkey as well as a number of private school investments in the last three years. The IFC will probably continue to finance promising projects meeting the crucial and increasing needs of society such as healthcare and education. Upon the official announcement of the Turkish Ministry of Health, the IFC would be interested in reviewing PPP projects planned for the future.

To cut a long story short, Turkey, as an emerging economy, anticipates keeping its high growth rate, while eventually spending more money on health and education, similar to EU levels. There will be many promising investment opportunities to be exploited in the healthcare system, including PPP projects in the years to come.

( DIPLOMAT  -  May 2006  -  Ankara )