Organic growth rates in the European hospital sector
It is interesting to compare likely growth rates in Germany, France and the UK for private hospitals.
France is the least certain, following the 2.9% cut in the MCO tariff earlier in 2015. We think that left the sector at zero growth in 2015. Capio, for instance, saw like for like fall 0.9% in the first nine months. There is no certainty as to what will happen in 2016. The one comfort for the big French groups is that tougher times should leave more smaller players seeking to sell.
In the UK, the picture is more complex, but also poor. The Spire profit warning shows that private medical insurance was down 0.9% in the four months to Octoher as insurers got tough on costs. More worryingly, Choose and Book, where patients opt to go to private facilities paid by the NHS could face a swingeing 11-13% price cut from March 2016 onwards. That would counteract fast sales growth there.
All this suggests that 2016 could see a decline in the UK sector, which is already heavilly consolidated. We hear that even international patient numbers are dropping, as the UK loses out to Germany and other destinations.
Germany is the one bright spot. Here the government is pumping yet more money into a feather-bedded system. Operators reckon that DRGs from statutory insurers, paid alike to private and public operators, go up around 1-2% a year and put organic growth at 1-3%. But that is only part of the story.
German hospitals historically get 90% of their growth from privatising municipal hospitals. Here it has been a poor year, with almost no deals so far. And if the government gives public sector hospitals more money, fewer will need to sell to the private sector. Again, we’d argue that it is time the big German groups looked beyond their national borders.
In Germany, 1m migrants who have a right to treatment, even if it is completely unfunded, may hit profits, particularly for groups in big cities, but eventually the government is likely to pay out for this.
On balance, Germany still looks an awful lot more appetising, followed by France where consolidation could still drive sales growth.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
