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Journal number 3 ∘ Tengiz Verulava Nino Besiashvili Mirian Todria Zviad Lobzhanidze
Nonprofit Medical Organizations in Georgian Healthcare System

Expanded Summary

There are several forms of ownership of medical organizations: Nonprofit, For-profit, State-owned, Public-private partnership. Such diversity is mostly due to the particularities of the medical market. However, there are predominantly two forms of ownership in Georgia – for-profit and state-owned.

The most widespread form of ownership of health care organizations is the nonprofit one. In Europe, nonprofit hospitals make more than 70-80% of the hospitals. Similarly, in US, 57% of the hospitals are nonprofit, while 26% are state-owned (public) and private for-profit hospitals represent only 17%. Most of the physicians have private practice in profit and non-profit hospitals.

Contrary to the above-mentioned, only two forms of ownership has developed in Georgia. But, we should not disregard one important fact: before sovietization of Georgia, charity hospitals existed in Georgia as well. For example, in Tbilisi, on the place where the former 9th hospital was situated, stood an infirmary next to the church of Andrew the Apsotle, where the famous Georgian poet Vazha Pshavela passed away. The mentioned infirmary, like other infirmaries of the time, was a nonprofit hospital. After 1921, with the eventual soviet occupation of Georgia, nonprofit hospitals became state-owned healthcare organizations [4]. As a result, during the soviet period, there was only one form of ownership in Georgia – state ownership. After regaining independence, private hospitals were added as well. Thus, at present, there are only two extremely radical forms of ownership of health care organizations in Georgia – state-owned and private [5, 6].

Hence, we can say that since soviet times, Georgia has been off the path, which the European countries took in terms of developing the health care system (forms of ownership of healthcare organizations is one of the characteristics of the health care system).

According to data from 2013, 88,6% of the hospitals are private for-profit, among which 42% is owned by insurance companies, 29% by individuals, 18,4 by other types of companies and 8% is state-owned. More than 80% of hospitals are owned by three private insurance companies (Aldagi, GPI- holding, and Aversi/alfa). Private Insurance Company Aldagi owns 49% of the hospitals. Insurance Company GPI-holding owns 255 of hospitals. Insurance Company Alfa owns 17% of hospitals.

It is important to take note of the following problems of the health care sector of Georgia: Most hospitals have fewer than 50 beds (34% of the hospitals have between 11-20 beds; 17% - between 21-30; 41% - between 41-50). According by international experience, a hospital with fewer than 50 beds cannot become for-profit. It is equally important to highlight that certain types of health care services are not profitable; thus, the owners of the hospitals have less interest to fund expensive services. Therefore, insurance companies that own hospitals may not bear expenses for such types of medical service.

Very often, the word ‘nonprofit’ is misinterpreted and it is considered that such organizations do not represent profitable enterprises. As a matter of fact, nonprofit, as well as for-profit, or even the state medical institutions attempt to make a profit. They only differ in the way they distribute the profit. Nonprofit hospitals are managed and run by boards composed of physicians, society representatives, and managers. The profit hospitals are managed by shareholders. To be more precise, nonprofit medical institutions do not distribute the profit to the owners or the shareholders, unlike the for-profit medical institutions. The profit gained by their work is distributed and spent on improvement of medical services that the hospital provides, acquisition of tools and equipment for diagnostics, increasing the salaries of the medical personnel of the hospital.

Besides the historically advantageous environment, nonprofit hospitals in western countries had significant support from the governments. As the non-profit hospitals provide service to poor and low-income patients, their activities are considered to be charity. Therefore, their income and property is exempt from taxes. The tax benefits do not apply to profit hospitals. Furthermore, profit hospitals have no right to receive public donations. Donations are given to the non-profit hospitals to provide medical service to vulnerable population.

In Western Europe and US, trust in nonprofit medical services developed over the years also played a role in the existence of non-profit hospitals. On the medical markets, where consumers are less informed and do not have relevant education on the needs of healthcare services, the great importance is attached to the trust-based relations. The patients tend to trust towards nonprofit hospitals more than for-profit ones, as the latter are not focused on the profit and doesn’t strive to take advantage of the patients’ lack of information.

In addition, the society overlooks the performance and governance of nonprofit hospitals. Their policy is more flexible for implementation of the activities such as provision of expensive medical service. In the non-profit hospitals doctors have more possibilities to independently define the hospital policy, service provision, purchase the need medical equipment and services. Due to this, non-profit hospitals better correspond to the financial interest of doctors. In contrast to this in profit hospitals the gain is basically divided between shareholders and state taxes; thus, the motivation of doctors is rather low. Therefore, the factor of trust, public benefit, and financial interest of doctors is main basis for high number of non-profit hospitals.

The popularity of nonprofit hospitals is evident in certain cases, as 70% of US patients prefer nonprofit hospitals, while only 13% go to for-profit ones. Even the medical personnel prefer the nonprofit hospitals, as the majority of them work in nonprofit health care institutions.

It was mentioned above that one of the reasons contributing to the development of nonprofit hospitals in the Western countries was the exemption from taxes. Thus, according to the internal revenue code/tax code of Georgia, nonprofit organizations, which undertake charity activities benefit from tax privileges. Charity organizations are exempt from corporate income tax.

Despite the fact that an entry about nonprofit entities and their exemption from taxes exists in the internal revenue code of Georgia, sheer existence on paper is not enough for the development of nonprofit hospitals in Georgia. As the nonprofit health care institutions in Georgia are underdeveloped, we can claim that there is a lack of motivation for the existence of such institutions. Further elaboration of tax benefits and privileges in the revenue code is necessary based on European experience. It is expedient to increase the role of nonprofit hospitals on Georgia’s health care market.

 Different forms of ownership of the medical organizations will increase the competition between different forms of ownerships, which will improve access to health care services. Most importantly, this will bring Georgia closer to the experience of the European countries.