Investment Opportunities in the Hungarian Healthcare Sector from a Regulatory Perspective

PappThe relatively low level of health spending in Hungary – 8% of GDP compared with the 9.3% OECD average – means there is a certain latitude for a potential increase in the market as a whole. According to the OECD, although volatile health-spending trends in Hungary over the past decade, the macroeconomic prudence of recent years and encouraging growth prospects are causes for optimism.

Owing to its geographical location, Hungary provides ideal regional headquarters for life science companies aiming to invest and/or expand their activities in the SE European region. Investors in the Hungarian life sciences market may find ambitious biotechnology companies, talented research institutions and renowned R&D capabilities, along with skilled labor force that has relatively low wage requirements. Investors in the Hungarian healthcare sector may be beneficiaries of EU-related or government cash subsidies, tax incentives and low-interest loans granted by the Hungarian Central Bank.

Nevertheless, investment in the Hungarian healthcare sector has its ups and downs; therefore it is crucial to have an in-depth and up-to-date understanding of the market before making investment decisions. From a regulatory perspective, based on recent legislative trends, the following activities may all provide promising investment opportunities in Hungary.

Health Insurance Sector – Opening Up in the Midterm. According to current government plans, private insurance services will be welcomed within the Hungarian health insurance system in the midterm. As a result of recent regulatory changes, private healthcare services may not be performed in public healthcare institutions. Private healthcare providers are encouraged to create their own infrastructure. To this end, a two-tier health insurance system is envisioned in Hungary, where the first, basic tier would consist of basic healthcare services equally available to everyone on a social solidarity basis, whereas the supplementary second tier would consist of private insurance services organized by private capital based health insurance funds, aiming to provide extra welfare and additional services on an optional basis. Should the legislative framework be prepared in the coming months in line with the aforementioned goals, the first strategic investors in the opening private insurance system might well see a return on their investments.

Appetite for Medical Devices. Hungarian healthcare institutions have been traditionally – and deliberately – under-financed and have therefore been generating revolving debts. As a result, the under-financed nature and the obligation for repayment of ever growing debts have often paralyzed the medical device development programs of hospitals. It seems now that the Government is committed to consolidating major parts of the current debts of hospitals. According to the Y2015 state budget, on top of the normal budget for the healthcare system, an additional EUR 200 million have been allocated to consolidate debts of healthcare institutions owed predominantly to market suppliers. According to the recent statements of the Minister responsible for health care, the competent ministry has commenced negotiations with the medical device suppliers, in order to settle the debts of the hospitals. Once this happens, such consolidation may relieve the tight budgetary constraints on hospitals and make way for the strategic acquisition of medical devices and appliances.

Potential Targets for Private Healthcare Service Providers. In parallel with the consolidation of the debts of hospitals, the Government has launched a restructuring plan for healthcare institutions. Although the details of the restructuring program are not yet publicly available, it seems clear that the main goal of the program is to eliminate parallelisms in the healthcare system and reduce the number of hospitals providing general inpatient services. It is likely that one priority hospital will be appointed – instead of the current many – with general responsibilities per region supported by specialized hospitals. As a result of the restructuring, several healthcare facilities may become redundant and hence serve as a potential target for brownfield investments.

R&D Incentives in the Pharmaceutical Sector. Both refundable and non-refundable incentives are available for investors coming to or expanding in the life sciences sector in Hungary. One of the most important of these incentives is that pharmaceutical companies – in certain circumstances – may deduct a high proportion of their R&D expenditure from their tax obligations. An R&D investor may be entitled to further government subsidies if, in relation to its R&D related investment, several new jobs are created in Hungary.