Healthy profits

Health resorts in Poland enjoyed great success during the communist era. However, they were then viewed as places for recuperation and mainly associated with health treatment, as well as social activities and dancing. Nowadays the fashion for health resorts is coming back in a new way. "Polish health resorts are not just sanatoriums, hotels, boarding houses, restaurants, cafés, spas, promenades or tourist trails, but also areas for engaging in Nordic walking, cycling on paths of varying degrees of difficulty and, finally, as facilities with professional cross-country ski courses. They also offer water recreation complexes, skating rinks for children and youngsters, sports and recreation complexes, outdoor gyms, theme gardens and high rope parks, among other features. Health resorts are also building more and more modern spa and wellness facilities," says Jan Golba, president of the management board of the Association of Polish Spa-Communities (which embraces 36 spa communities across Poland).

However, within the CEE region this kind of restructuring is not unusual. As Frederic Le Fichoux, the head of the CEE hospitality team at Cushman & Wakefield's Prague office states: "Medical tourism is very much a niche segment. I wouldn't say that it is expanding but rather changing. In the past, medical tourism was essentially used by patients in need of curative treatments who were accommodated at ?medical spa' hotels for a period of 1 or 2 weeks, where costs were typically paid by health insurance or state organisations. Nowadays medical tourism is becoming more sophisticated and attracts not just people in need of treatment but those who want to look after themselves. This implies that facilities need to be improved to fulfil the needs of everyone."

Similar changes can also be seen on the Polish market. "There has been a very dynamic development of health resorts in recent years. Huge national and EU funds have been invested in them - a total of over PLN 1 bln during the last seven years. New ones have been built while existing swimming pool complexes, spas, hotels and sanatoriums have been modernised," adds Jan Golba. However, the needs of such centres are still big. "According to official information published by the state, the investment needs reported by the 100 pct state-owned health resort authorities amount to app. PLN 150 mln," claims Jerzy Szymańczyk, the president of the management board of the Polish Health Resorts Association.

Is privately-owned better?
There are 45 open health resorts in Poland at this point - the state has shares in 25 health resort companies, 11 of which it is the sole owner of. In 2010 eight health resorts were privatised. The privatisation of three health resort companies is currently in progress, even though in its 2012-2013 privatisation plan, the state announced ownership changes in 13 more entities. In the case of seven of them work is currently pending aimed at removing these resorts from the list of companies not subject to privatisation under regulations passed in 2008. According to a new draft of the regulations, only the Krynica-Żegiestów health resort will remain 100 pct owned by the state. Treasury representatives claim that the privatisation of health resorts is a chance for the development of these types of companies and for creating favourable conditions for effective competition on this market. "The current economic and legal status of heath resort companies operating as firms wholly-owned by the state varies. Despite their positive financial results, most health resort companies suffer from a shortage of funds for development plans. Taking into consideration the fact the state is unwilling to continue financing them, the only way to acquire funds for their future development is to find an investor able to invest in a modern therapeutic and hotel base," explains Magdalena Kobos, a treasury spokesperson. She also rejects the allegation that the resorts' services will be limited after the privatisation. Opponents of taking the facilities into the private sector are worried that a future owner will abandon therapeutic treatment and switch to the tourist and hotel business, particularly in the case of higher standard facilities. "Privatisation can be an efficient way of acquiring additional capital and ensuring stable development, especially as it will not restrict the possibility of providing health resort treatment from public funds. The National Health Fund, which is required to contract services in the public sector, focuses on the quality of service and its price rather than the ownership structure of a health resort. The treasury believes that privatising health resorts will not lead to limiting the access to health resort treatments. It will only improve their quality and the scope of available services," adds Magdalena Kobos. The treasury assures us that it is interested in retaining the therapeutic and spa functions. Health resorts' sales agreements include suitable provisions that oblige investors to keep their current status. "The health resorts sold will not only maintain their business profile but will also improve the quality and scope of their services. The Nałęczów health resort, which was sold in 2001, was fully-renovated within only a few years, its list of treatments has been considerably extended, and the comfort of its services has been improved. The administrative district also benefited from that, as the health resort is its greatest asset and can be used for promotional purposes. Thanks to privatisation Polish health resorts are becoming more competitive and better promoted. Their higher standard and improved service helps them to attract not only customers who have contracts with the Polish national health service, but also commercial ones from Poland and abroad," claims Magdalena Kobos. Local government also benefits from privatisation, as this is one of the ways of getting communities out of financial troubles and subsequently attracting a larger number of clients. "When it comes to the privatisation of health resorts, it has to be said that wherever it has taken place the standard of the therapeutic and hotel base has improved. The therapeutic services on offer are extended by adding spas and wellness and beauty treatments. The Association of Polish Spa-Communities generally supports privatisation, but recommends that each case should be treated individually because no health resort is the same as another. "In our opinion the state should keep some health resorts in its hands so as to have an influence on at least a few issues connected with the functioning of health resorts, such as the quality and contracting of services, the price shaping process and the availability of medicinal raw materials," argues Jan Golba. Jerzy Szymańczyk is also cautious on the subject. "In our view, the entities providing medicinal spa services in Poland should have a variety of ownership structures. Privatisation, and consequently, the recapitalisation of a company, could be one of the ways of ensuring a high quality of services and society's universal access to medicinal spa services," says Jerzy Szymańczyk.

Against the neighbours
"Polish health resorts are a good brand, even though they have less institutional support than Czech, Slovak or German ones. Compared to foreign facilities, they offer an excellent, European standard of services. They also offer the most competitive prices, particularly compared to German or Slovak health resorts after the introduction of the euro. However, Polish resorts do, however, have one certain drawback: poor transport links, infrastructural barriers, lack of railway services and too few airports - all being issues that considerably limit the accessibility of Polish health resorts. One big problem afflicting the Polish health resort industry is the lack of a common promotion campaign for the ?Polish health resorts' brand," points out Jerzy Szymańczyk, who goes on to emphasise that neighbouring countries, such as the Czech Republic, Hungary and Slovakia, have governmental programmes aimed at the promotion of their national health resorts.

Indeed the situation for health resorts elsewhere in the CEE region appears very different to Poland. Across much of the region health resorts and spa hotels are already in the hands of private investors. In Slovakia, Janka Zálešáková, the president of the association of Slovak spas, denies that there is any governmental support for the sector. The vast majority of the members of her organisation are privately-owned companies, but despite this around 45 pct of stays are funded either entirely or partially by the country's health insurance system, while 30 pct of guests come from abroad. Due to the flow of private capital the segment has already undergone restructuring. According to Martin Plachý, the vice president of the Czech Spas Association and President of the European Spas Association, around 85 pct of such facilities in the Czech Republic are in private hands. In total 38 towns in the Czech Republic are recognised by the ministry of health as spa towns. Such recognition is based on the prior discovery of thermal springs, healing mud or due to the fresh local climate with proven health benefits. These towns will have government appointed natural healing resource administrators, but, with one or two exceptions these posts are filled by representatives from private companies. In Karlovy Vary, the largest Czech spa town, the post is controlled by a company that belongs to the town. Unfortunately, the market has been hit by cuts in health expenditure. Martin Plachý estimates that the cuts are equal to between 10 pct and 15 pct annually. Doctors no longer have the freedom to prescribe long recuperative stays in a spa hotel.

The situation in Hungary, at first glance, also seems similar. In 1972, under the communist government at the time, a state company was set up with the aim of providing hotel accommodation to guests visiting municipal thermal spas in spa towns. Soon afterwards, to meet the requirements of these guests, many of these hotels began piping the curative waters directly into their buildings, and thus became spa hotels. In Hungary these waters are specifically used to treat rheumatism and arthritis. In July 1991 the company was privatised as Danubius Hotels and the company has since gone on to expand across the CEE region with spa hotels in Slovakia and the Czech Republic.

In Hungary, the state no longer supports long term comprehensive spa stays at private spa hotels, except for certain selected treatments. However, Mike Wallace, the spa director for Danubius Hotels, did confirm that state insurers across the board in Eastern Europe are reducing their budgets for curative stays in spa hotels. Such state prescriptions now account for app. 30 pct of the groups' spa hotel guests in Slovakia and 20 pct in the Czech Republic. Interestingly enough, despite these cut-backs the spa hotels in the Danubius Hotels chain have still remained profitable. "We have replaced our guests with those from growing markets such as from Arab countries or Russia, who come not just for the medical services, but for illness prevention and pampering too," claims Mike Wallace. A typical stay in a spa hotel can cost as little as EUR 100 per night. It includes full board, three to four treatments a day, plus a doctor's consultation once a week. However, since it's a privatisation, Danubius hotels has expanded the range of its treatments to include beauty and relaxation as well as general fitness and preventative treatments. When it comes to the group's investment strategy, Mr Wallace declares that: "Our company is attracted by spa locations with natural resources. There must be something unique about the location at a good price. A lot of the companies we have taken over were owned by the state, who had been struggling to run them in a business-like manner." When it was pointed out that these criteria seem to match many of the facilities now on sale in Poland, he explained - without ruling out further expansion - that the company's current priority was to refurbish and invest in the facilities that it already owns.

A problem of terminology
One of the problems that faces the industry seems to be confusion over what a spa hotel actually is. The problem is not helped by the fact that a hotel with a spa is very different to a spa hotel. "I'm a judge at the World Spa Awards and it amazes me what people will classify as a spa hotel," says Mike Wallace. Generally speaking, he believes that a spa hotel must have a natural resource, offer a wide range of treatments, and the spa should be the core reason why the guests are visiting. In the CEE region such hotels are strictly regulated by government with "regulations that are comparable to those for hospitals in the UK," he explains. Tobias Bielenstein of Europespa, a certification organisation for spas and medical spa facilities, also claims that there is a need for clearer international standards because, as he says: "If you want to set up a sauna and call it a spa, at the moment you can. Providing transparent criteria for quality and credible certificates - that's why we exist."

Alex Hayes, Aneta Cichla