“Fast and furious growth” – A survey of private healthcare operators in Europe and Emerging Markets
Big for-profit healthcare operators expect to grow sales at over 10% annually for the next five years in Developed and Emerging Markets, but what do they see as their main challenges? A fascinating picture is revealed in a new survey of 81 mainly CEOs and CXOs in 37 countries of predominately large hospital chains, diagnostic lab and imaging players, commissioned by Siemens Healthineers (the new name for Siemens Healthcare) from Healthcare Business International. The quantitive survey was followed up with depth interviews with a dozen respondents.
The first surprise is forecast growth rates. In developing markets from Chile to China (and including Central and Eastern Europe) players expect to grow revenue by 14.03% annually and predict market growth of 11.18%. In Developed Markets (in this case Western Europe plus South Africa) operators expect growth of 10.7%, against predicted market growth of 6.7%.
Healthcare Business International CEO Max Hotopf said: “Many will be surprised by growth forecasts for both markets and operators in Europe. After all, in Western Europe many private operators have seen tariff drops and budget ceilings. But operators have included their forecasts for more outsourcing by the public sector and an increase in private expenditure as public payors increase co-payments and retreat from other areas.”
Growth through acquisition explains the very high forecast growth rates for Europeans. Christian Mayer, CEO of fertility clinic group Christian Mayer, CEO, Vivaneo said: “I forecast 15% per annum growth, but if we get funding for acquisitions in Europe, it could be 50% per annum!”
In some ways, Europeans have it easy insofar as they can buy up smaller players. That isn’t an option in many Emerging Markets where the capacity has to be created. An international nursing home operator said: “There is huge demand for nursing homes across Latin America, but there is nothing but mom’n’pops with 5-10 beds each, so there is nothing you could possibly want to buy. Every new home is a greenfield site, so expansion is slow.”
In almost every sector, operators in Developed Countries can still buy growth through consolidation and this is a fairly risk-free technique. It is generally much easier to buy hospitals, nursing homes or labs than to do greenfield sites.
So what do these groups see as the main challenges?
Developed country operators, unsurprisingly, see tariffs as a major challenge, according it a score of 4.7 out of six, whilst Emerging Markets score it at 3.8.
Developed country operators are also more uncertain of their ability to control tariff rises at 3.1, compared to 3.5.
The second challenge for Developed Countries was reaching new consumers at 4.1. For Emerging countries the big challenges are reducing costs at 4.2 and staff recruitment and retention at 4.1.
But some defined their biggest challenge in other ways. For Santiago Valor, CMO at Synlabs International, it is “to add value in our service chain. If we only focused on cost, then why would we not be replaced by a competitor? Or even Siemens and Abbott?”
Emerging markets are particularly affected by the challenge of retaining staff. Dr Richardson Ajayi, CEO, Bridge Clinic, Nigeria said: “The main problem with Nigeria is staff. It is difficult to get people with the right skills. So we skill them up. But then they are highly-trained, with nothing left to learn from us, and financial draws from competitors and the United Kingdom. We try to create long-term incentives, but the reality is it is hard to compete financially. We do have people who stay, but because they feel part of our plan, our vision. So loyalty is a bigger staying power than money. But many have gone to the UK.”
The same applies for the Indian Healthcare Market , a hospital operator said: “The competition is twofold. Local competitors and the Gulf. From a single hospital we lose three people a month to the Gulf.”
For many Europeans, staff is also a problem but that varies sector by sector:
Mayer at Vivaneo said: “Competition is a huge problem. It takes 9 years to become an invitro fertilisation specialist in total. For a boring job doing the same thing all the time! So they get poached. It is a Pan-European problem for IVF.”
And it could well get much worse. A large European lab operator told us: “Shortages are a problem now, and they will be a huge issue which will limit innovation as a generation of lab doctors retire in the next decade.” There are also short-term political threats, a UK hospital operator said: “If the UK leaves the European Union it will really exacerbate the already serious nursing shortages and would affect our supply of doctors.”
So how prepared are operators to face these challenges?
Unsurprisingly, they feel that there is little they can do to deal with payors. Developed countries scored their preparedness here at 3.1 compared to 3.4 in Emerging Markets.
In general, they are confident they can boost quality and clinical capability. Both scored 4.3 in Emerging Markets, with quality scoring 4.8 in Europe and capability 4.4. Building the right culture is more of a puzzle – here both markets scored 3.9.
But, for some, expanding clinical capabilities is the big challenge. Take Andrea Stopper, SVP of Dialysis Services Coordination for Europe Middle East & Africa at Fresenius Medical Care. “Most patients are multi-morbid. The challenges are about integrating care and specialities – we need integrated follow-up and care, not just dialysis, as almost 40% of dialysis patients are diabetic. We should put the patient in the middle with the steering wheel, and not the specialist doctors. At the moment this is not happening, even if people say that the patient is important – it’s a veneer. “
We asked operators about the importance of quality, but several of interviewees maintained that this was less important than proximity to the patient or availability, something we hadn’t asked about.
Joseph Priel, CEO of Euromedic International said: “The real issue is availability, not quality. Because of an ageing population across Eastern Europe, you have to wait months for an MRI scan. So quality is of secondary importance, availability is the key. “ The CEO of a French lab group added: “For payors and patients in France for labs and hospitals the important thing is proximity, not quality.”
The picture then is of often huge untapped and unmet demand. Perhaps private healthcare, particularly in Emerging Markets, is a little like Coca Cola, where in the 1990s availability was seen as the key thing, leading to a drive to put Coke machines into offices and schools.
Another major threat that we did not ask about was currency fluctuation. In countries such as Russia, Nigeria, Brazil and Turkey this has had a huge impact.
Ajay in Nigeria said: “We import almost all our consumables, mainly from Europe. The devaluation has meant the cost has gone up 70% for medtech. We change the prices quarterly, but we can’t put this all onto our consumers, which means we take the hit. And foreign staff working with us are now being paid in dollars.
For some operators this is a really life and death – particularly in countries like Russia, where operators took out dollar-denominated mortgages.
What of the impact of new apps and the threat of uberisation?
Developed country operators, perhaps because of the strength of a public service which meets many needs and strong, if bureaucratic public payors, felt they would be less affected by new apps, by patient choice and also rate the risk of uberisation lower. But, for all three categories, some correspondents expected a serious effect. Patient choice in Emerging Markets will have a 4.3 impact and 4 impact in Developed. The threat of serious disruption and uberisation is taken fairly seriously at 3.5 for both. New apps which connect patients to their records will also have a big impact at 4.2 in Emerging and 3.8 in Developed.
The development of apps is often linked to the development of cash paying customers – something that many respondents expect to see happen in Europe. Santiago Valor, chief medical officer at Synlab International said: “Citizens are going to diagnostics directly. Almost 100% of patients go to primary doctors at the moment, but I predict that eventually 10-25% will go directly. What is the impetus? Our citizens are becoming more well-informed, more conscious and are using the new tool from webs and new tests, before they get sick!!”
But qualitative research found more sceptics to the concept of disintermediarisation. Several suggested that a new player would struggle to build capacity. We think that the problem with our question was that at the moment it is still not clear what an uberisation business model will look like in healthcare service. Although Healthcare Business International suspects that rating and booking sites moving into the provision of on-demand telehealth consultations is the likeliest path.
When it comes to where change will happen, both expect the private insurer relationship to change dramatically at 4.1 for Emerging Markets and 4.2 for Developed. Emerging markets score a confident 4 when asked whether public payors will use the private sector more. Developed countries at 3.7 are not far behind.
Valor at Synlab said:“In Europe we see a merge of big insurance companies which will change their approach to the market. At the moment there are limited offerings in terms of prices etc. We see them starting to provide different options, with more limited coverage, differences in prices for women and kids and an alliance with the public sector.”
Assessing how they will work with public payors is much harder, particularly when it comes to outsourcing says Guglielmo Brayda di Soleto, CEO at Medipass, the managed equipment service provider, which works in Italy, the UK and the Gulf.
“The NHS in England usually takes 6-8 months for a public tender but it can be much longer. Three years ago, we won a tender with a Sussex trust. We were finally told we had it for certain last November, and now we have been told there is a delay, and that it will now start in August!”
That mirrors many people’s experience and lot of resistance remains to outsourcing within the public sector across all of Europe, with the partial exception of Germany.
Both groups expect quality scores to be a major factor at 4 for Developed Countries and 4.4 for Emerging Markets.
Interestingly, Developed Countries are more likely to expect cash payments to grow sharply at 3.7 than emerging markets at 3. That reflects the view that, as the state rolls back, so the citizen will have to pay more out of pocket, although so far OECD figures for Europe do not show this happening to any great extent.
Andrea Stopper, SVP at Fresenius said: “Out of pocket already exceeds 20% in Europe. This is increasing year after year, as patients become consumers and become better informed. They will demand more. People will pay a premium, like a co-payment on top of public services, giving additional services – a supplementary insurance.”
In Emerging Markets, the rise of statutory insurance is not viewed as a serious threat and if anything may lead to more growth for the private healthcare sector.
An Indian hospital operator said: “The government has announced an extension of healthcare insurance to the working class. This will increase the users, which will lead to falls in quality in public hospitals. This means that the middle classes will move to private hospitals. We will see PMI coverage double to 40%.” But others at the conference felt that they could work well with the statutory insured. Abrar Mir, CEO of Quadria Capital said that the rise in statutory insurance would power a new mass market.
Our qualitative research suggests that in many cash-strapped Emerging Markets medtech and possibly insurers are seen as a serious potential investor.
Dr Richardson Ajayi, Bridge Clinic, Nigeria said “We will see vertical integration with medtech and/or insurers providing healthcare services. This is the way forward.”
Developed Country operators are less sure.
The CEO of an Irish hospital operator said: “When insurers buy hospitals, it is always a disaster. Medtech sometimes wants to offer to run services for us but we can get the same terms from banks without giving away our profits.”
But European (and Indian) managed equipment service operator Medipass reckons that Siemens, GE and Medtronic are all seeking to increase services as their product sets commoditise. “Therefore my market, which is small at the moment will increase a lot because when such big companies will stimulate and improve the service contract market.” He says current growth is 25%, from a mix of organic growth and acquisitions.
Medtech is seen as a cornerstone of future business success. Some 79% see it as an important differentiator and 69% say medtech investments increase revenue. Two out of three expect revenue increases from medtech to more than outweigh costs.
Within Developed markets we can see some interesting differences between the main groups. Take growth. Here imaging services reckon they will grow sales by 15.4% per annum over the next five years (although some of that growth could well come from acquisitions in Emerging Markets). Labs at 9.9% were also optimistic, although they expect their markets to grow at just 4.9%. In contrast, European dialysis groups expect their market to grow by just 1.5% and hope to grow by 6%!
Labs in developing markets see their main challenge as tarrifs at 4.9, improving quality at 4.9 followed by reaching new consumers and widening their clinical capabilities at 4.6 and cutting costs at 4.5. In other words they are worried by tariffs and are responding by cutting cost and trying to reach new markets. They are also very worried about staff retention at 4.6.
Labs in Emerging Markets are keener to cut costs at 5, slightly less worried re payor tariffs at 4.5 and more relaxed re quality at 3 and expanding their clinical capability at just 1.75. They also want to reach new consumers at 4.25.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
