The Estonian healthcare system is currently being transformed from a state-controlled hospital-based system to a decentralised Western European-style model. The healthcare sector has been undergoing extensive restructuring since 2000 when the government announced its major reform plan, the Estonia Health Project 2015. The pharmaceutical industry has also undergone modernisation in recent years, in order to bring domestic standards in line with international norms. This has been a costly process, compounded by weak external demand.

Estonia is one of the ten countries that joined the European Union in 2004, and as a result changes have been made to pharmaceutical legislation, harmonising manufacturing and marketing operations with those in the EU. This region is important to the Estonian pharmaceutical industry, because around 82% of the pharmaceutical market is supplied by imports. Latvia, Germany and Poland were the leading suppliers in 2006, accounting for over 40% of imports. The value of imports has increased every year since 1999, following a slight decline.

Funding for healthcare in Estonia is principally through compulsory health insurance, operated by the Estonian Health Insurance Fund. In 2006, the EHIF reimbursed prescription drugs to the value of Ekr966.8 billion (US$77.5 million). The average prescription cost for the EHIF was Ekr179 (US$14) in 2006.