Five candidates have reached the final stages of consideration for entry into a medical cluster on the outskirts of Moscow, which has received US$165m of state support, we heard from its CEO and advisors at the HBI 2017 conference.
The Moscow International Medical Cluster (MIMC) is, currently, 57 hectares of land leased from the Skolkovo Innovation Centre, a Muscovite attempt to recreate Silicon Valley two kilometres outside the city and benefitting from state subsidised rents.
The plan is for it to become 'a platform for emerging medical practices through a multidisciplinary international collaboration in medicine, research and education', with 15-20 facilities including a diagnostics & outpatient centre, a multi-profile hospital, and a range of centres of excellence specialised in oncology, cardiology, rehabilitation and more. The state investment will go on shared amenities like conference and education centres.
MIMC is looking for large players with global reputations. The deal is that the players provide the operational and clinical expertise that can be passed on to Russian providers, doctors and patients. In exchange, they benefit from special legislation, best-in-class infrastructure and demand from Russians looking for quality care.
Ekaterina Timofeeva, principal at The Boston Consulting Group (BCG), which is advising on the project, said five candidates are close to signing, but there are over 30 names in the ring.
Without naming names, she said: "The highest interest has come from an Israeli group, then South Koreans, Americans and a Japanese group."
Europeans, she added, have been slowest to express interest so far, but this has more to do with issues in their local markets than politics. The process is late. It had been reported that the first entrant would be announced in the summer of 2016, but despite not naming any names, MIMC denies that any bids have been pulled.
Mikhail Yugay, CEO of the MIMC's managing company, IMC Foundation, explained the rationale for the project: "Russian healthcare was fifteen to twenty years behind that of most developed nations when the USSR fell, but since then we have been improving fast.
"We need to bring new models of care and operational management from developed countries, but they need conditions that they are used to in order to work, facilities with the equipment and protocols that they have back home."
The registration process for foreign medicines can take five years in Russia, we hear, and, of course, the sanctions and political tensions that have affected its relationship with the West may have have deterred foreign investors.
So MIMC is banking on a unique regulatory environment that will allow foreign doctors and groups from OECD countries to work within the cluster without Russian licenses, and even to use foreign medicines freely. Federal Law 160
, passed in 2015, allows medical protocols, medicines, devices and certificates for medical and educational staff that have OECD-licensing and the entry of international staff without quota.
MIMC and BCG have put together an advertising document to support a roadshow that's about to begin publicising the cluster. In its pitch, it points to an improving business environment in Russia with a rising rouble, an economy in recovery and a position as 40th on the World Bank's Ease of Doing Business Rankings, up from 120th just six years ago.
Private healthcare is also on the rise, they claim, and with the public sector growing below inflation in three of the past four years the real dynamism is found in the private sector, where MD Medical Group, in particular, has shown impressive results this year.
In fact, MIMC boldly claims that "EBITDA margins average 19% across all medical service providers working for out-of-pocket (OOP) and private health insurance (PHI) payment" in the country.
OOP paid services will grow particularly fast and provide particularly high margins, said Timofeeva, owing to the stop-start nature of the country's PHI market. OOP and PHI together are expected to grow at 11% CAGR between 2016-19 according to the document.
It's also a fragmented market where the top five players gather just 7% of sales, with foreign players like Grupo Villo Maria of Italy and Turkey's Acibadem now entering.
But we put it to MIMC that with perhaps up to 100-150 beds for each inpatient facility, the MIMC would create a lot of new capacity in a market that has historically found it difficult to support many inpatient beds.
MD Medical Group, for example, told us last week it's building hospitals in the regions because that's where the spare demand is. And there is also a new 140-bed hospital due to open in the Moscow city in 2018
MIMC says, however, many of the facilities will provide both state-of-the-art inpatient and outpatient treatments, and also that Moscow is short of inpatient beds right now.
Our Analysis: Where will patients come from? Hospitals in the cluster will not be able to work with the statutory insurer, and many have doubts over the viability of a Russian medical tourism market.
Public healthcare in Russia, for example, has been cut severely and a cursory Google search for "Russian healthcare" brings up stories with the title "The Horror of Russian Healthcare" and "Russian Healthcare is Dying a Slow Death". There are just two Joint Commission International accredited facilities – Turkey has 43.
But Timofeeva says in addition to a growing outpatient market, corporations could buy healthcare directly from the providers. Sberbank and the Russian railway system, for example, have 250,000 and one million employees each and she claims this type of companies could potentially become clients.
Then there are also charitable foundations that have been sending patients abroad due to the lack of specialty care in the country and may now stop.
Collaboration within the cluster, they claim, will also create unique opportunities for educational and the R&D within medicine. It is very hard to assess the feasibility of such medical cities. Dubai's we are told is lagging and behind schedule with operators prefering to be in the city and neighbourhoods where patients live. What is clear is that there are a lot of rich Russians, Moscow is equivalent to a sort of Switzerland, and wealthy people tend to leave the country for treatment. Recent growth at MDMG is partly attributed to more of these folk staying at home. So there should be a huge market for the new cluster sitting right on its doorstep.