BMI View: Although Armenia represents a limited opportunity for most drugmakers and medical device providers, relative to its Caucasus neighbours, it has maintained a high level of expenditure on healthcare, as a proportion of GDP. As the state continues to increase funding for healthcare, we expect pharmaceutical expenditure to rise in concert. While we are concerned about the level of funding derived from out-of-pocket expenditure, we believe there has been progress on this front. However, more investment in healthcare infrastructure and primary care by the state is needed to further improve access and uptake by the Armenian public.
During the Soviet era, Armenians apparently enjoyed a relatively high standard of care and an excellent healthcare system, delivering comprehensive care, albeit in a heavily centralised fashion. As with many Soviet healthcare systems, emphasis was placed on secondary care and treatment within hospitals, with primary care displaying deficiencies characteristic of most former Soviet republics. Since the breakup of the USSR, the Armenian healthcare system has experienced significant structural changes and is fragmented into private and public provisions.
|Spending on Healthcare Expected To Grow|
Total health expenditure has risen dramatically since the turbulent 90s, although on a per capita basis is considerably lower than Western European countries. There has been a sustained increase in the share of government spending allocated to healthcare since 2002. Government health spending as a percentage of GDP has increased significantly, owing to the state's prioritisation of healthcare in allocating public sector resources. This was despite overall fiscal tightening, when public expenditure as a percentage of GDP fell from 22% in 2002 to 18% in 2007. Indeed, government healthcare spending as a percentage of GDP rose from 1.36% to 1.61% in the same period. It has since fallen to 1.51% as of 2012, owing to the impact of the 2008 global financial crisis.
Healthcare expenditure in Armenia is dominated by private financing, constituting almost 60% of total health expenditures in Armenia. Most of this money comes directly from out-of-pocket spending, owing to the spread of informal payments in hospitals and clinics to services. Currently, eligibility for a government-funded basic payment package is restricted to 22 population groups, mostly elderly and vulnerable pools. Funding from these pools is largely unable to cover the cost of medicines and healthcare in any meaningful way and as a result, some 16% of Armenian families face catastrophic healthcare costs incurred from emergencies. International evidence from the World Health Organisation indicates that high levels of out-of-pocket payments correlate strongly with catastrophic healthcare spending. While Armenia has made strides in reducing this level of private spending, we note that it is still relatively high compared to Western European countries and regional peers.
Pharmaceutical expenditure has followed the overall healthcare spending trend; data from the World Health Organisation and BMI research indicates that households also bear the burden of paying for medicines in Armenia. In 2008, spending on households on medicines amounted to AMD19bn (US$51mn), some 42% of all pharmaceutical sales in Armenia. In contrast, the government spent AMD4bn (US$12mn) in total on medicines. Although household spending has since declined, this is not due to greater spending on the state's part, but rather a fall in discretionary income from the effects of the global economic downturn.
There are some positive developments emanating from Armenia; healthcare spending is apparently becoming more efficient, with the proportion of expenditure going to salaries and drug spending increasing between 2006 and 2011, in both hospitals and primary care. Coincident with this development are greater investment in facilities and infrastructure for primary care, and a subsequent rise in utilisation of healthcare facilities by the population. While in urban areas most patients visit private clinics, continued investment in expanding access will help to accelerate the reduction in private spending as a proportion of total healthcare expenditure. With the state shouldering more of the burden of healthcare combined with better efficiency within the healthcare system, Armenia's spending on healthcare and pharmaceuticals is expected to grow at a rapid pace over the next decade, albeit from a low base.