Russia: The Rise (and Fall) of Healthcare

May 01, 2007


When the Russian Federation emerged from the former USSR in 1991, the social net that had provided for Russians' healthcare needs - including centralized distribution of medication - was just a memory. No drug registry existed during the first few years of independence, and foreign pharmaceutical companies were able to sell just about anything they had in stock into the new private distribution structure.

As the production of consumer goods, including pharmaceuticals, had previously taken place in other socialist countries in Central and Eastern Europe, regional players were able to leverage name-brand recognition and existing production assets to dominate the Russian market. Multinationals entered the fray, but many retreated when the economy was crushed in 1998 by the ruble meltdown that reduced the currency's value against the U.S. dollar by 300% to 400% almost overnight.

However, the Russian economy quickly rebounded from the crisis, thanks to its immense natural resources, and is now a bona fide petro-economy with net creditor status. President Vladimir Putin's dominant United Russia party has been able to achieve budget surpluses large enough to put billions of dollars away for the future while funding tremendous works in four national programs, the largest of which is healthcare.

Declining Population

World Health Organization (WHO) statistics speak volumes about the negative effects of more than a decade without any real national healthcare coverage. The health of Russia's population has dipped to a ranking of 127th out of 192 WHO member states, and the public health system is ranked even lower at 130th. Communicable diseases represent a substantially higher share of the disease burden than in Europe, and Russia has posted the world's highest increase in HIV incidence rates. Russian men have suffered the most severe health deterioration and now die at an average age of 59.

This is principally due to heart disease and external causes (such as accidents, poisoning and injuries) and is largely attributed to unstable economic conditions, unhealthy lifestyles and a widespread lack of attention to risk factors. Additionally, more than two-thirds of the population lives in areas affected by air pollution and 63% of males smoke, so the prevalence of respiratory disease is high and cardiovascular disease causes 56% of all Russian deaths. The two major killers, ischemic heart disease and cerebrovascular disease, each cause at least 400% more deaths per 100,000 people per year than in the European Union (EU).

Coupled with this general decline in health, the increased annual federal healthcare budget - worth $3.9 billion for drugs and a total of $5.7 billion in 2006 - has suddenly made Russia a hotbed of pharmaceutical industry activity. The first large-scale federal social program since the creation of the Russian Federation, the DLO, was launched in the beginning of 2005 to bring greater access to modern pharmaceuticals to a population of 8 million pensioners and low-income families. The program's inaugural $1.8 billion budget, which has settled at $1.2 billion in 2006 and 2007, was the major catalyst behind the Russian pharmaceutical market's rise to a global ranking of 12th in 2005 before it became the world's 10th largest commercial drug market in 2006. Through world-leading 28% growth, Russia is now an $8.4 billion ready-to-use-drug market.

The DLO was a driving force behind the state-financed sector's 82% growth and increased its contribution to the overall Russian market to 39%, a level which approaches that of the US. However, many industry insiders are concerned about the hasty implementation, as well as corruption in the unsophisticated program, which has recently led to budget overruns, more than $1 billion in outstanding bills, and consequently, greatly reduced or halted drug deliveries in many cases.

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