Brazil: for-profit hospitals face crisis
Aside from Rede D’Or, Intermedica and Amil, Brazil is dominated by many thousands of small private hospitals. At Healthcare Latam, the inaugural Pan-Latam healthcare conference held in Sao Paolo this month, we learnt that many are now doing badly, but still won’t sell. Meanwhile, employers are seeking structural changes in healthcare delivery.
Jose Carlos Villela at private equity house Warburg Pincus says these small hospitals are still owned by families or doctors, many of whom are on the second or third generation, but are still loath to sell. That is despite facing very tough times. “Labour costs are rising, as is the cost of equipment, but they can’t put through any rise in prices because of regulations.”
Another delegate said that most hospitals were at break-even at best and were unable to replace expensive medical equipment. A speaker suggested that small hospitals with fewer than 50 beds simply won’t survive. According to McKinsey, that means the majority of Brazilian hospitals.
Jose Miranda da Cruz Neto at Grupo São Francisco, a regional hospital chain and insurer, said that today it makes no money in provision. “The insurance arm is what supports us.” He said that cost cutting worked at the hospitals, but the group still faces big challenges. “Medical inflation is rising at 15%. We’ve managed to cut some costs but we still face 8% rises.”
Our Analysis: This should be a great opportunity to consolidate the Brazilian acute sector. But investors are frustrated by the unwillingness of groups to sell. They need to find charismatic entrepreneurs who can persuade others to sell.
We think that the vertical payor provider model will be the winner. We hear that United is now really looking hard at Amil using its data arm, Optum, to analyse and cut costs. Brazilians expect this to lead to the development of low-cost models.
We would welcome your thoughts on this story. Email your views to Zhasmina Simeonova or call 0207 183 3779.
