The Hungarian government has fought to hold health care spending at 10 percent of all government spending.

(Bloomberg) — A $62 million construction project on the banks of the Danube River is the biggest bet to date that Hungary’s crumbling public health care system guarantees a bright future for private hospitals.

Deteriorating conditions at state hospitals, where patients routinely need to bring their own toilet paper, have pushed people to pay for care outside the communist-era relic. Private health spending in the past two decades more than doubled, according to data from the Organization for Economic Cooperation and Development.

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Ukrainian entrepreneur Igor Iankovskyi is building the Duna Medical Center in Budapest, an eight-floor, 130-bed hospital with seven operating suites that’s set to open in 2018. Hungary’s biggest lender, OTP Bank Nyrt., is also planning to invest in a hospital.

“We are now witnessing private hospitals springing up en-masse,” said Eszter Sinko, a health care expert at Semmelweis University in Budapest. “This year will bring about a take-off in this business.”

Doctor exodus

An exodus of underpaid doctors and nurses, who’ve emigrated by the thousands to richer western European countries in recent years, has left behind overworked and underpaid colleagues at state hospitals. Hungarian governments have chipped away at health care spending, bringing public financing to 10 percent of budget spending by 2013, the lowest level among 34 OECD members.

Partly as a result, Hungary has the highest mortality rate from cancer, and the lowest number of CT and MRI scanners among the group, according to OECD. Local health authorities spent this year tamping down media reports that a lack of sterilizers contributed to the spread of viruses in state hospitals.

The lack of government investment has forced Hungarians — accustomed to universal health care coverage since communist times — to dig deeper into their pockets. Private spending made up 35 percent of total health spending by 2013, the highest level in central Europe. Much of that has been so-called “gratitude payments,” money slipped by patients to doctors and nurses at state hospitals in hopes of getting better treatment.

Potential investors

That willingness to pay more is piquing investors’ interest. Czech-Slovak private-equity group Penta is considering investing in Hungary, spokesman Gabriel Toth said in an e-mail, without elaborating. Penta already operates 14 hospitals in Slovakia and is the majority owner of EMC, the largest corporate owner of hospitals in Poland.

OTP Bank is planning financing to “show how a modern hospital should be run,” Chairman Sandor Csanyi told shareholders on April 15. He declined to elaborate, according to the bank’s press department.

Some private facilities, like Robert Karoly hospital in Budapest, are already making a profit. The hospital’s revenue will probably reach 1.4 billion forint ($5 million) in 2016, 10 percent more than last year, according to director Gabriella Lantos. The 55-bed hospital will add another 15 beds this year to meet growing demand, Lantos said.

Regional laggard

Hungary has been a regional laggard when it comes to private care. The Czech Republic has the highest share of private hospital beds in central Europe at 20 percent, said Gaetan Lafortune, a senior economist at the OECD’s Health Division. In other countries for which data is available, the level is below 10 percent, Lafortune said.

Politics is partly to blame, with a history of government interference in the private economy scaring off investors.

Prime Minister Viktor Orban campaigned against the partial privatization of state hospitals in a 2004 referendum under the slogan “Health isn’t business” and won a ballot in 2008 that scrapped a $1 co-payment for doctor’s visits. His rhetoric had resonated with voters concerned about growing inequalities in health care. The referendum triggered the fall of the government at the time, opening the way for Orban to win power in 2010.

Plugging holes

Once in office, Orban has shied away from overhauling the ailing medical system, a political hot potato which past leaders either avoided or gave up on reform. Slipping in polls, he has pledged to raise health care funding by 167 billion forint next year, partly to boost wages ahead of the 2018 elections.

That’s only sufficient to slow the decline of the state-run system, which needs about four times that amount to plug financing holes, according to Semmelweis University’s Sinko.

Duna Medical Center’s Iankovskyi says that the gap between public and private care won’t disappear any time soon.

“There’s dynamic market growth in private health care services,” Iankovskyi said. “If the model works, the next target is central and eastern Europe.”

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