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September 2012

NEWS

Spain & Italy improve terms

3

Mercer lab created

3

Nursing homes storm

4

Surpluses

6

Advent swoops on Mediq

7

PPPs to end

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Egypt

France

Germany

Netherlands
Portugal

Spain

Alzira growth in Valenica
United Kingdom
PCT outsourcing
Eastern Europe

10
11

Innova plans obs and gynae 12
Diagnostics

CRC and Balague collapse 15
FEATURES

Interview Jaap Dijkman,
Medial-Atal

Editorial

18

20

Interview Elan Mladova,
MD Medical Group 22
Soft Outsourcing

Interview Valerie Michie,
Serco

Psychiatry: Set for Growth
HCE final thought

24
28

30
36

MD Medical tests
hospital valuations

Will the London Stock Exchange become the home for a wide range of
private hospitals from around the world? That question may be
answered by the success or failure of the flotation of Russian obstetrics
and gynaecology (OBGYN) clinic chain MD Medical Group.

The company will announce a $295-343 million offering, in an attempt
to raise $150 million of new cash. It is targeting a valuation of around
$885-955 million, or around 18 times prospective 2012 EBITDA. Can
the company justify such a high multiple?

The only other comparable group to float on the London Stock
Exchange, NMC Health, achieved a valuation of 8 times EBITDA. The
company raised $187 million through the IPO.
One source said that institutional investors were sceptical. But an
analyst who follows the sector internationally told us: “That’s a
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Outsourcers expand into
new markets

PAGE

Big outsourcing companies are expanding their healthcare operations
from traditional sectors - such as patient feeding, cleaning and business
process outsourcing - into fast-growth, innovative medical areas. They
are also pushing the complete outsourcing of all non-medical activities
as an alternative to privatisation.

Core soft areas, such as cleaning and catering, are growing at only 23% a year. Outsourcers are often hampered by sales tax traps, which
mean that hospitals can’t reclaim the sales tax levied at 19-23% by
private contractors. These traps don’t tend to apply in medical areas.

Accenture, a big player in business process outsourcing, is building
new services to manage chronically-ill patients who are constantly in
and out of expensive acute hospitals. It uses its data analysis
2
PAGE

www.healthcareeuropa.com

MD Medical Group - cont.

higher EBITDA multiple than the
peer group average. Still, MD
Medical’s EBITDA margin, at
over 40%, is much higher than the
mid-20% global average.”

The current range for comparable
emerging market hospital and
clinic groups on exchanges
around the world is 8.7 to 20.8
times prospective 2012 EBITDA.
NMC is the low end of that range,
with IHH Healthcare - the
emerging market behemoth, with
a presence in Turkey, Malaysia,
Singapore and Indonesia - at the
top end.
Hospital chains in developed
markets, meanwhile, trade on a
much tighter range of 5.8 times
(Generale de Sante) to 8.8 times

Outsourcing - cont.

skills to identify these patients
and then directly employs nurses
and doctors to serve them. Pilots
are running in Spain, France and
the UK, as well as the USA,
where Accenture employs 700
nurses.

Sodexo has moved into diagnostic

(Ramsay)
EBITDA.

prospective

2012

Our Analysis: Can MD justify
its price? JP Morgan estimates
2013 EBITDA at $86 million,
which brings the valuation down
to a 10-11 times multiple at the
end of next year. Whether this is
achievable is a matter for debate,
presuming as it does an
extraordinarily high EBITDA
growth. Still, first-half EBITDA
growth between 2011 and 2012
was just over 50%; continued
growth at that rate would make
good on JP Morgan’s estimate.
The company’s numbers are
certainly impressive, with sales up
42% to RUB 2.9 billion in 2011
and ahead 49% at RUB 2 billion

lab outsourcing in a joint venture
with Labco.

Aramark,
a
massive
US
outsourcing outfit, has moved into
‘multi-vendor
managed
diagnostic imaging outsourcing’,
in which it supplies second-hand
hardware with the latest software

www.healthcareeuropa.com
++44 207 183 3779

Editor: Max Hotopf, max@healthcareeuropa.com

Marketing & Subscriptions Manager: Sonia Jennings, sonia@healthcareeuropa.com
Editorial Advisory Board

Andreas Beivers, Ph.D., Lecturer, Institute of Health Economics and Hochschule Fresenius
Tomas Ekman, Partner, 3i

Michael Leahy, VP Operations, Euromedic

Joe Ryan, Chief Financial Officer, Medicover

in the first half of 2012. EBITDA
rose 19% to RUB 1.3 billion in
2011 and then up 59% to RUB
851 million in the first half of
2012. Net profit rose 26% to RUB
924 million in 2011 and 84% to
RUB 728 million in the first half
of 2012.

Coming in at the high end on a
valuation might also seem
reasonable with 40% EBITDA
margins
and
a
business
environment that happens to be
characterised by zero-rated
corporate tax, but political
conditions are volatile in Russia
and a favourite son can become an
outcast very quickly. It will be
interesting to see whether the
market is happy to take MD at
their word.

upgrades to providers. The
package offers hospitals a chance
to rent the kit, paying a monthly
service fee. Rob Piconi, head of
Mesa Medical, the European arm
of this division, expects the sector
to grow 30-35% a year and values
the sector at €400-500 million in
2012 in Europe.

Meanwhile, Serco and Virgin are
pioneering new contracts in the
UK, where they manage
everything in small hospitals apart
from clinical services delivery.
Food,
catering,
facilities
management and logistics are all
run by a single partner.

A feature on outsourcing appears
later in this issue.

It should not be assumed that the views expressed in any articles in this newsletter are those of any member of the editorial board

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Design and layout ADOREDWORDS&PICTURES, London

2

HEALTHCARE EUROPA

September 2012

www.healthcareeuropa.com

Spain and Italy improve payment terms to providers

Most Spanish regions are now
paying
healthcare
service
providers in 60-90 days. Even in
Italy, the situation is improving,
with troubled healthcare region
Lazio pioneering a web portal that
makes debt securitisation much
easier.

Mercapital
partner
Carlos
Barallobre said that the recent
passage of a new law has forced
regions in Spain to pay owed
reimbursements much faster. He
says 60-90 days’ wait is now the
norm.

In Italy, Steve Skerrett of Banca
Sistema – where he heads the
bank’s Italian factoring business,
which specialises in public and
healthcare sector debt – says that
delayed payments have been a
way of life in Italy for 25 years.
He also says that, despite the
recession, payment times have
barely changed. “The average
time that healthcare payment
authorities took to distribute
reimbursements – or ‘DSO’ – was
318 days in 1990. In 2012 so far?
317 days.”
Banca Sistema, which purchased
factoring company SF Trust in
2011, has been active in this area

Denmark

Falck buys PreviaSundhed

Danish emergency services
outsourcing group Falck has
expanded its occupational health
arm in Denmark, with the
acquisition of PreviaSundhed
from TryghedsGruppen.

The deal adds 300,000 customers,
90 employees and 50 small clinics
to the network. Falck now covers
1.7 million Danes in 7,000 public
and private companies. Outside of
Denmark, Falck has also built a
chain of outpatient clinics in

www.healthcareeuropa.com

for some time. “Italy is a big
market in debt factoring because
long payment times are the norm.
Even large US companies, which
would not normally consider
factoring, come to us in Italy
because they prefer to actively
manage the debt on their balance
sheets. If they don’t, these assets
may be scrutinized by equity
analysts back home who are
looking sceptically at the books.”

When it comes to Lazio, (which
has a huge dispute with San
Raffaele/Tosinvest) the payment
situation hasn’t significantly
deteriorated in the last few years.
In fact, DSO times have been
falling: the site assobiomedica.it,
which is updated monthly using
reports from providers of medical
technology, shows payment times
are down by around a third since
2006.
That still leaves the DSO at 411
days in 2012 so far, however,
above the Italian average. “Issues
also become more complicated
for accredited providers,” says
Skerret. Accredited providers are
those delivering clinical services.
“They get a set spending
allocation
from
the

Poland that work within the
public system and are paid by the
National Health Fund.

Egypt

Merger creates biggest lab
in Egypt

The merger of Al Borg and Al
Mokhtabar has created by far the
largest diagnostics lab group in
Egypt. The group nascent
operations in Jordan and Sudan,
with an eye to international
ambitions. Margins there make
European lab groups weep. We

commissioning authority – the
Aziendi Sanitari Locali (ASLs) –
and they’ll have a lot of trouble
getting further reimbursements if
they go over that. Not only that,
but sometimes they’ll have
extremely
narrow
service
definitions, so they won’t receive
payment for anything that strays
outside of that.”

The biggest development in debt
repayment has been the move
towards a more transparent
process. Says Skerret: “Just as
important as the drop in DSO in
Lazio has been the move to an
automated system. Basically,
they’ve created a web portal that
companies upload all of their
invoices to. The region then takes
a while to confirm that the claim
is valid, then it ‘certifies’ the debt.
Once it’s certified, there’s a better
idea of what the timetable for
payment is; not only that, but it
becomes much easier to finance
that debt when it’s certified,
thanks to the transparent path to
full payment.”
Other regions have made some
moves towards this kind of
system, but nowhere is as
advanced as Lazio.

talk to Ahmed Badreldin, of Al
Borg private equity owner Abraaj
Capital, about the Egyptian
market and the group’s plans.

The merged group of 3,300
employees should have pro-forma
sales of $120 million and after-tax
profits of $45 million. Around
90% of that comes from Egypt,
although the group already has
operations in Jordan, Sudan and
Saudi Arabia.

The merged business will be 47%owned by Abraaj, 47% by the
owners of Al Mokhtabar and 5%
by staff ESOP, of which Dr Hend
is the main component. It is

September 2012

HEALTHCARE EUROPA

3

probably via the Cairo stock exchange. in total. France French nursing homes storm ahead More rock-solid half year results from the big three French nursing homes. we will expand into imaging.2% to €685 million.4 million. The concern is that these companies will be hit by government cuts. Finally.2 million.000 labs in Egypt.healthcareeuropa. so this creates greater demand and higher occupancy rates. Hend El Sherbini. Belgum and Germany. Jean-Claude Marian. “Despite the fact that there are 4. convincingly. As with the other two groups. where he says any expansion would have to be by greenfield sites. Ahmed Badreldin at Abraaj reckons that. with government hospitals accounting for 100 million and the military/police hospitals a further 70 million. which sees it paying a dividend for the first time in 24 years. with attributable net profits up 80% to €10. In any case. whatever the Hollande government says publicly. or 25% of the total volume in the private sector.” Egypt. secondly. who can afford to pay daily room rates of up to €200. but are compensated for by a 3-4% growth in patient numbers and a rise of 3-4% in tests per patient. The key point is that these companies all target rich areas. Analysts say that the main reason that the trio’s shares have underperformed is investor concern about their dependence on the state for 30-35% of their revenue.” He claims that. he reckons the Egyptian market is growing by 10-15% per annum. president of Orpea concedes that “investors have been worrying about cuts for two or three years. renovates them and then markets the bright. Poorer people in the provinces pay €50-70 a day in the public sector homes. when the French CAC index is up 11%? Orpea saw sales rise 15. She is Dr. so far. “Price increases at 5-10% are lower than inflation. a Professor of Clinical Pathology at Cairo University. with its population of 83 million. it buys decrepit homes. Egypt has seen very little price pressure. as the government limits new nursing homes and public sector psychiatry wards.000 private beds. which have successfully moved into Italy. Medica was ahead 16.com . But why are Korian’s shares down 12% over the year? Why is Medica down 2%? Why is Orpea ahead only 9% despite 15% sales growth in the first half.” He argues. Korian’s revenues were up 12. Orpea has done best out of the group partly because of good results. but reportedly growing at 50% a year. “Outside of the 4 HEALTHCARE EUROPA public hospitals. makes up 90% of group sales. That’s our first priority. Badreldin says that Abraaj will most likely exit in 2013 or 2014. He says that. but also in psychiatry. This model applies not just to nursing homes. and partly because of a new strategy. This should enable it to reach many more institutional investors. but the ratio of pipeline beds is down from 47% in 2009 to 27% and is likely to fall further. Outside of Egypt. the Sarkoszy government said that it would introduce new legislation. particularly the wealthiest 20% of the population. the south and other rural areas are still under-served.1% at €349 million with attributable net profits up 16. new facilities to the top 20% of society for higher day rates. He sees plenty of room for expansion. which is running at 12%. The new strategy is likely to see a slowdown in Orpea’s steady organic growth rates. says analyst September 2012 Sebastien Malafosse at Bryan Garnier.000 beds. it is in the government’s financial interests to have patients in www. he says that the group already has a strong presence in the small Jordanian market and a large operation in the Sudanese market – which is also small. He says that the merged group will perform 20 million tests over the coming year.HCE news interesting to note that the new CEO comes from Al Mokhtabar.” Al Borg has been owned by Abraaj Capital since 2008. particularly in France. The Hollande government says that it will legislate in 2014. Egypt does 250 million tests a year. Its pipeline still stands at 8. Spain. with a quarter of the sector’s 12. leaving 80 million from the private and outpatient sector. Orpea is the largest private player in the French psychiatric market.7 million in the first half.8% to €50. which was also the controlling shareholder of the business.8% at €548 million. and by strategies which seek to grow low-margin homecare at the expense of nursing home capacity.9% to €24. with attributable net profits up 25. that investor concerns are misplaced. Overall. Almost all tests are for cash payers or private medical and corporate insurers. there is almost nothing there. He is interested in Libya. Every six months.

com seems to be pursuing an active M&A policy. analysts said all three de-emphasised international expansion.HCE news private psychiatry. He expects to conduct a third wave later in 2012. Korian’s margins. where they have all now demonstrated that they can build successful businesses producing at least 2122% EBITDAR. Medi-Partenaires buys Bordeaux hospital “Chaos gives room for manoeuvre and creates opportunity. and its new management team has not yet bedded down. “We’ve demonstrated that we can expand abroad. Group DVD. youth unemployment and public order in the suburbs. We’d expect to see the big three continue to expand internationally. Dubois has already done two waves of sale-and-leaseback deals this year with property group Icade.5%. This is a sign of the times: historically. in the long-term. at 23. Dubois says that he pans to add another. CEO of MediPartenaires. with the keeping patients in its nursing homes. as prices been falling marginally.” So says Frederic Dubois.000-bed critical mass in Belgium and Spain. Capacity has actually fallen over the past decade in the Netherlands. A particularly juicy deal might reach 10 times. it is hard to argue with Marian’s claim that. Orpea managed to grow sales 14% in the first half of 2012. The government has made it plain that any new nursing homes will have to act as hubs from which homecare can be delivered to the surrounding population. Still. Care homes currently fetch 8-9 times EBITDA. Orpea has bought 30% of homecare operator Domidom – which generated 2011 sales of €13 million – for €3 million. only Medica www. Most of the money is to pay down debt. The public sector still gets €300-400. the state pays us €120-150 per day for each psychiatric patient. according to consultant Stephane Pichon. Medica has already grown EBITDAR margins to 26. “In total. and there is still plenty of growth in its huge pipeline of homes undergoing renovation. Orpea is responding to the government’s demands by experimenting in telehealth and homecare. While the trio will continue to grow outside France. which raised €345 million for the company. are the lowest of the peer group. but the deal adds a third facility to September 2012 HEALTHCARE EUROPA 5 . to around €97 million. the second-largest privately-owned group. the UK and Sweden as length of stay has declined sharply. M&A activity in France has declined.healthcareeuropa. Analysts continue to signal out Orpea as the star. Many in the baby boomer generation are wealthy enough to pay high day tariffs. He says that currently. Korian and Medica have a lot of shareholders in common and a merger there would make sense if Korian falters. We are now way over the 3.7 times forward multiple – hardly a low number. Our Analysis: We agree that the worries over government policy are misplaced. He would not reveal the price paid for Generale de Sante’s hospital. We think careful expansion abroad will probably be cheaper than buying in France. That leaves the group trading on a 16. You can argue that increasingly elderly demographics don’t necessarily translate to more nursing home beds. Analysts expect Orpea to still see a 20% rise in after-tax profits in 2012. but some has gone into a war-chest for future operations. The company is also experimenting with telehealth in Paris. Orpea has turned its nose up at the relatively low margins in homecare.” Meanwhile. which will mean that MediPartenaires will have sold almost all of its property. smaller hospital to the group in October 2012. This applies in Spain and Italy as well as France. The number of private homes up for purchase in France is shrinking. Medica and analysts all point out that Korian’s expansion in Germany may be risky. could also eventually be purchased by Orpea or Medica. An analyst told us that “we don’t see any particular will for Orpea to go much further than generating 30% of sales outside of France. Medi-Partenaires’ plans and what Dubois thinks of the Hollande government.” Interestingly. We look at the reasons behind the acquisition. 10-15% of over85s will need nursing home care.7%. with one or two more acquisitions to come after that. Accordingly. Marian didn’t recognise this ceiling. rehab and psychiatric units out of expensive public acute care beds. We can continue to grow these operations. The truth is that the Hollande government has other priorities – Education. This is odd.” Meanwhile. which has just acquired a large hospital from Generale de Sante.2% compared to Orpea’s 25. and likely no riskier. as Germany is a nonlicenced market where there is free competition – and thus lower occupancy rates. Orpea.

The deal had reportedly become too complicated in the eyes of the supervisory board. “The sheer scale of the changes happening in France today is bound to create some opportunities. another large private group with a presence in Lazio said it had no problems. Techniker Krankenkasse. but the health fund’s results mean that cost pressures 6 HEALTHCARE EUROPA are likely to stay at the forefront of their thinking. told us that recent gains and losses will make no meaningful difference to insurers’ actions going forward. A spokesman for Garofalo.healthcareeuropa. which is owned by the wealthy Angelucci family.com . Eugen Muench is left in control after going over the heads of his entire management team when he accepted the Fresenius deal. But he could decide to stay on for at least another decade. Germany Surpluses in Germany While the individual German krankenkassen are enjoying surpluses right now – collectively sitting on €22 billion – the central health fund that allocates money to all of them ran a €500 million deficit in the first half of 2012. Certainly. that it is not a very large sum of money. Our Analysis: Given that San Raffaele/Tosinvest continues to fail to answer the phone. Problems seem to centre around the Villa Buon Respiro site. Fresenius failed to achieve its goal of creating a national hospital chain which could have offered a real alternative to the public hospital system. the problem appears to be an almost personal dispute between San Raffaele and the head of the Lazio region. The GKV warns: “Because the performance of the statutory health insurers is continuing to improve. Those groups who opposed the deal – Asklepios. it is hard www. half-year results. especially given the unpredictability in the European economy at the moment. Sana and B Braun – achieved their goal. Fresenius pulls Rhoen bid Fresenius has decided not to launch a second bid for Rhoen Klinikum. The fact that he was willing to sell to Fresenius suggests that he is ready to retire. The catalyst for further action is likely to be Eugen Muench. A spokesperson for the GKV – the insurers’ association – refused to be drawn on what members are planning to do with the current cash pile.” Translation: expect the government to make the surpluses disappear. is mired in a dispute with Lazio region. We expect many years of stalemate to ensue. but remains convinced that there are opportunities. Just about everyone has lost out. That accord has broken down completely. it also has implications for how the insurers will use (or not use) their surplus cash.” he adds. however. will be watched like a hawk by analysts. Our Analysis: We are now back to stalemate in the German private hospital market. Insurers have discretion over whether they wish to use the breathing space afforded by surpluses to reduce premiums. which could not justify a bid that would almost certainly have left Fresenius nursing a 50%+1 stake in Rhoen without any real access to its profits except via dividend disbursement. That group now covers more specialties and is a more promising strategic partner for the regional health authority there. The GKV is keen to point out. Demoralised management is not September 2012 likely to perform well. While Lazio has a poor reputation for paying. It is worrying that.HCE news Medi-Partenaires’ Bordeaux group. Italy Tosinvest Sanita fails to pay staff Tosinvest. and particularly the performance of university hospital Giessen and Marburg. the fund is still not able to stay in balance. As such. federal grants to them will be reduced in the coming year. for instance. and San Raffaele seems poised to cut a huge part of its service. the French Minister of Health and Social Affairs. Dubois notes that Marisol Touraine. entrepreneurially. has been stressing the role of the private sector in recent presentations. Rhoen is left in a mess. which saw a big infrastructure investment from Raffaele and an agreement between the company and the local government that would allow the troubled franchise to continue operating. it can be expected that already-tense negotiations between insurers and hospitals over admission rates and payment reforms will remain fraught. despite Hollande’s pledge to end the planned convergence of tariffs between the public and private sectors. despite Germany’s remarkably improved employment picture. however. but are all left sitting on large losses on their stakes in Rhoen. Dubois says that 2011 was a difficult year.

As well as traditional drug distribution to pharmacies. leaner procurement. contract renewal. they want steady hours. But national governments are keen to build better homecare services for patients in order to keep them out of acute care for as long as possible. Here. Analyst Erwin Dut at Kempten speculates that Advent will now www. rate negotiations and so on. a 53% premium on the closing share price on September 21. they wrecked drug distribution by pushing down prices. there is no certainty that new rules won’t also hit direct and institutional sales. With 2011 sales of €2. In that sense. self-employed. pharmacies and the medical professions – hate the idea of a larger homecare sector. tariff prices were abolished for pharmacies. the big healthcare insurer and private equity house Reggeborgh. Mediq has operations in the Netherlands.HCE news to know what is likely to happen next. Banking sources suggest. We deal with contracts. it also has 12% of the Dutch retail pharmacy market and a smaller chain in Poland. however. General practice is changing as a profession: family doctors are increasingly moving towards the four-day work-week. The future is in the direct and institutional business.000 employees and tens of thousands of patients annually – is too important to be allowed to fail. Over the last few years. selling off retail pharmacy and possibly even the traditional drug distribution arm. Its chain of rehabilitation clinics – with 2.2 billion and a 2011 EBITDA of €102 million. it has been building up higher-margin value-add distribution. particularly for generics. So.000 patients. So we employ the doctors directly. payment-by-activity and funds for running chronic disease management programmes. doctors face a bureaucratic nightmare. including claims processing. Competitive pricing means that EBITDA profits in Mediq’s Dutch retail arm are expected to fall from €26 million in 2011 to €4 million in 2012. what is the attraction of a stock which has been a consistent underperformer? Shares rose 49% following the bid and (unless Mediq attracts another bidder) the Advent bid looks like a done deal according to analysts. First. They are also keen to see hospitals and health regions pursue better. we provide the office and the September 2012 HEALTHCARE EUROPA 7 . Of course.” says ZorgPunt Medical Director Gert-Jan ter Braak. Mediq is a somewhat ungainly animal. means the share is unloved and was trading at just seven times 2011 net profits. that was fine. when there was only one insurer in every region to deal with. Switzerland and all the Nordic countries. This has put the big insurers in the driving seat. Germany. Back a few decades ago. Advent’s acquisition of Mediq is marching with history. Each one has to manage contracts with 10to-15 insurers. they just want to practice medicine instead of having to do all of this administration. The deal gives Advent an international platform from which to build the direct and institutional arm. which has been built through a series of international acquisitions to sales of €1.66 billion. Now that the Dutch insurance market has been liberalised. The deal values it at €775 million. Dutch primary groups to merge By far the largest for-profit primary care group is to be created by Dutch private equity investor NPM Healthcare which is merging its Arts en Zorg chain with ZorgPunt. that Lazio is likely to to some sort of come accommodation with Tosinvest. “is take all of that hassle away from them. Netherlands Advent swoops on Mediq Advent International has bid €13.healthcareeuropa. owned by Menzis. “What we do.25 a share for Mediq. we support them with an IT system. So how is primary care delivery set to change? Currently. Dut says that the immediate problem Mediq faces in the Netherlands springs from price liberalisation. these are combined with homecare activities. Mediq has even moved into recruitment in the Netherlands. however. Making these changes is not easy. But the economic rationale is strong and it is what citizens want. In January 2012. Often. as well as the USA. The combined group will have 150. Dutch primarily care looks like the English NHS did years ago: mostly single-handed doctors.com break up the business. the big Dutch pharmaceutical distributor with a large international platform in homecare and direct distribution. where it sells directly to institutions (principally hospitals) and to patients at home. paid through a mixture of capitation. Many vested interests – such as acute hospitals. But profit erosion in traditional wholesale distribution and in retail pharmacy this year.

which Dutch insurer Menzis has been pushing particularly hard. it is still 13% of all spending on the cure side” – i. We are collecting a massive amount of data on patient outcomes. and fits neatly into the mainstream of the health policy zeitgeist. however. From what we have heard. threatening 5% tariff cuts if targets aren’t met. Van Rooij adds: “We’re working closely with the insurers now. counsellors and so on. The insurers are pushing for payment by results. rather than just blunt force cuts. to introduce structural reforms.” One of these reforms. according to the GGZ. The situation is a little rocky in the Netherlands. Spending on psychiatric services has increased by 9% per annum between 2001 and 2011. so we wanted to give 8 HEALTHCARE EUROPA the process a boost. “We want it to be easy for the patient: they go to one place to get help. Our Analysis: These companies fit nicely with the trends on everyone’s lips across Europe at the moment – polyclinics (though some object to that name). We want to put doctors in clinics with pediatrists. board member Bas Leerink replied: “We really want to see the creation of big. As such. and so the government has mandated a selloff. “This is a place where insurers are likely to keep pushing for cost reductions.000 jobs in the sector and reduced capacity to treat patients. making it a tempting target for government budget cuts. unified chains in primary care that can use economies of scale to really bring down costs. with Reggeborgh and NPM Healthcare taking joint ownership. and our basic deal to the insurers is this: if populations covered by a ZorgPunt clinic are less costly than elsewhere. but thinks that the company will start to move to this model in five years.” As he puts it: “We do the things doctors don’t like. on medical therapies as opposed to social care – “in the Netherlands. which has fallen badly behind schedule. the medical board that runs day-to-day operations has extensive veto power.) being taken by the company board. September 2012 Psychiatry moves towards payment by results in the Netherlands Dutch insurers like Menzis are pushing hard for the implementation of patient monitoring systems.” ZorgPunt (Dutch for “Care Point”) is also pushing the polyclinic model in the Netherlands in a big way.e. That’s why we’re trying to work with them over the long term. consolidation.” Jan ter Braak’s vision extends even further than this: “If you do better in primary care. It is part of a general push to move patients towards ambulatory and preventive treatment.. Menzis has threatened to drop providers who aren’t keeping up with deadlines for implementation of a patient selfreporting system. ZorgPunt itself is the result of a merger half a decade ago of three smaller organisations. Their silence reflects Dutch worries about private equity involvement in the sector. is an increase in patient monitoring data.healthcareeuropa. Menzis will exit the company. physiotherapists.” EU law prohibits payors from directly owning a company such as ZorgPunt. The problem is that www. since private equity is largely distrusted and the government doesn’t want to be seen allowing investors to pocket large margins from social investments. a move towards focusing on primary care and paying for performance.” says GGZ director Paul van Rooij. etc. you save money in secondary and tertiary care.5 billion. with only broad business decisions (whether to extend geographically. This is after a 10% cut – equal to €600 million – to the country’s psychiatry budget this year.” He admits that it will take some time to learn how to interpret the data in this way and to hammer out agreements with insurers. we want to keep some of these savings – from reduced hospital and specialist visits – and use them to pay our doctors for performance. payments from insurers and we pay the doctors a straight salary. and the system is back on track to be implemented. Reggeborgh is not likely to exit any time soon. The two investors are apparently not significantly involved in management. which represents the providers in this entirely private market segment. does not commit to fixed investment windows and refuses to commit itself to a public offering as its ultimate goal.HCE news we handle infrastructure. NPM is keeping quiet about everything. potentially resulting in the loss of 9. as Jan ter Braak points out. When asked why Menzis had been involved in the company for so long. Still. the coming deal with Arts en Zorg will finally unite all of the various companies that have been pushing in this direction into one primary care giant. simply saying that all will be clear in two weeks.com . “Even now that psychiatric spending has been reduced to €5. the whole thing makes sense. We think this will go a long way to containing costs in the system.

Companies who hold these contracts are supposed to have a guaranteed income – but year after year they show poor financial results. “We divide products into 25 categories. www. “The big imaging companies are moving to functional contracts and away from leases for specific pieces of equipment. and if that falls short of what the sector needs. its interests would be different from ours. By getting boardroom buy-in. so that they can introduce pay-forperformance. We want to reduce the number of stock items by half and a logistics company wouldn’t want to do that. We can start paying for outcomes. but so too are cardio medtech devices.com ZXL aims to net 20% savings for members Dutch procurement group ZorgserviceXL (ZXL) claims to save its hospital members at least 20% on many products. from food through to MRI machines. “If we worked with a logistics company. often by nurses and doctors on wards. This isn’t necessarily true. each of which we regard as a commodity insofar as we seek to get all of them from one company. they replace old equipment with much better new products at no extra charge in return for exclusivity for the entire parc of imaging equipment. then insurers will have to raise their premiums. Germany and the Netherlands. Meanwhile. “To succeed.HCE news everyone is feeling pressure – the government sets a spending target. Margins are high. 80% of items are replenished automatically by scanner from a central warehouse. We want to move away from the per diem rate. Owned by three not-for-profit Dutch hospitals. historically. “German operators Prospitalia and Clinic Partner are both here. “When we get this system working. If providers don’t hit that by the end of this year. we have to get buy-in from the boards of hospitals. The government is now decisively turning against it.healthcareeuropa.” Our Analysis: There is a strong trend across Europe to push down hard on margins in psychiatry – particularly in the UK.” But ZXL goes right through to running its own warehouse and running its own logistics operations. where EBITDA of 3035% is common for larger operators. everything. as well as trends in the imaging market. The EU has demanded that this end. particularly in the UK. They feel that the government is just underpaying private September 2012 HEALTHCARE EUROPA 9 . Its approach is somewhat similar to that adopted by Health Trust Europe in that it is integrated. Prices of medtech devices in the Netherlands are generally considered to be at least 25% higher than in Germany. they desperately want to avoid doing that. As analyst Jorge Lanca of consultancy Yes4Knowledge told us: “It’s not just in healthcare – the government is retreating from PPP as a model in public transport.” he claims. Akerboom says that the company will procure €275 million of goods in 2012 and around €350 million in 2013. Payments are often on a per diem rate. “Psychiatric care in the Netherlands is still based around expensive inpatient institutions. This means that. he says that ZXL recently helped to negotiate a new imaging contract with Siemens for one of its hospital members. Akerboom says that this reflects the fact that.” Portugal PPPs to end in Portugal The PPP model really began as a phenomenon in Portugal in 2003. he seeks standardisation. a board member at Menzis. and take some time to understand how to interpret this data – maybe a year or two – we can change the whole system. We can then work to encourage doctors to standardise on equipment. He claims that ZXL is the only integrated service in the Netherlands. ZXL has recently added a fourth client and will shortly announce a fifth. If a patient takes longer to be treated.” It purchases everything apart from pharmaceuticals for its members. where we are practically paying per minute. Obviously. we will cut tariffs by around 5%. with the rest ordered from a webshop. doctors have had freedom of choice and also very high service levels. instead of activity. including maintenance contracts. So they’re pushing hard on initiatives like this one. the system assumes that’s because he is a more difficult case. We want to reduce the number of inpatient beds and move more psychiatric care towards ambulatory treatment.” Bas Leerink. We talk to Jan Akerboom about its integrated approach.” Thus food and textiles are examples. says that patience is wearing thin. but they are working more as aggregators and buyers. within certain parameters. rather than doing the entire supply chain. “The target was for 20% of patients to be in the system by the end of 2011.

Union resistance means that only non-medical services are likely to go out to tender. The Swiss care home sector remains highly fragmented. with 21 homes.healthcareeuropa. Luis Barcia of Tich Consulting says that two new hospitals Gandia and lliria are likely to be transferred to the Alzira model.HCE news contractors instead of fully funding a public hospital. market size and margins. very well. has a different take: “It’s easy enough to say that this is a case of ‘hidden deficit’. Spain Two more Alzira hospitals for Valencia Two more large public hospitals in Valencia look set to be sold off under the Alzira model. He says that the Valencian Ministry of Health is modifying its plan to outsource public sector hospitals. We give an overview of the major players. Swiss Re and the Marazzi family. A manager at Megalabs. No such luck. that a collapsed contract with Jose de Mello Saude would be put back out to tender. Their opposition doesn’t change the budget math. Tertianum. companies – “and given a budget in a similar way. Megalabs. The government has turned in a big way against them – it had originally been planned. September 2012 Switzerland Swiss nursing home market set to grow The Swiss care home market should boom over the next few years. It is adding two new homes per year. with 13 homes. SENIOcare has been turned around by a management team under Robert Bider (formerly of Hirslanden) and Reto Heierli over the last three years. attempts to ramp up the volume of outsourcing to the private sector have run into resistance from 10 HEALTHCARE EUROPA trade unions. took on the labs of the Canary Island-based Hospitem chain last year. to hide the spending they should be doing. despite tariffs that are at least 50% higher than in Germany. which can typically run the operations a great deal cheaper. and specialises in the private market. Barcia claims the current administrative concessions are working well. for instance. though: we will see some outsourcing.P. Sources suggest that the lab sector may be the first to open up. A Swiss nursing home with double-digit EBITDA is doing very. with bed occupancy rates rising from under 80% to over 95%.” Our Analysis: It is unclear whether the government will terminate the existing contracts or merely let them run their course. but the same thing happens to the public hospitals. working for public payors is not easy. which means that operators face less www.” He says that Valencia has reduced payment times to 30-60 days. “Operators – like German insurer DKV and Bupa’s Spanish brand Sanitas – are keen to stick with the model. which private operators claim cuts costs by around 25%. They have been showing deficits too. Meanwhile. Swiss municipalities are keen to outsource care to the private sector.E. While most cantons have a licensing system similar to France. Helvetia Versicherungen. “Salaries and costs are much higher. although there is still a problem looming at the end of the year. This is likely to hit the ongoing sale of HPP – the country’s thirdlargest private hospital chain – which runs the Cascais hospital under a contract won with a bid of €375 million. of the Universidade Nova de Lisboa. But Bider says that. But it doesn’t sound like these PPPs were such a great deal for providers. They have all been converted into social enterprises” – E. but we expect to see changes here in the next 2-3 months. but he adds that things might change in the Autumn. when debts that built up months ago will need to be repaid.com . the thirdlargest lab group after Labco and Echevarne. owned by Austrian operator Senecura. is owned by Zürcher Kantonalbank. Both work almost exclusively for public payors. “There will be a lot of union resistance. said that it public sector hospitals will likely be forced to start outsourcing their lab operations. These ‘administrative concessions’ have delivered cost savings of 25% in the past. The move from per diem rates to DRGs means that swiss hospitals will no longer be incentivised to hold onto the elderly as long as possible.” Pedro Pita Barros. The three largest players are Lombard Odier’s SENIOcare – with 971 beds in 28 homes and 155 assisted living apartments – and Senevita. This involves the private sector taking complete control of a facility on a 15-20 year contract.” he told us.” Almost all private hospitals in the country have now outsourced to dedicated lab groups. for instance.

but it too has found the going tough at times.” Services that haven’t been handed over to other NHS bodies have been and are being put out to tender. Note the small size of Swiss homes. where they exist). To rent a 60 square metre assisted living flat from Tertianum costs CHF 5. and are among the biggest outsourcing contracts the NHS has seen. however. “One is that they can spin the services off into independent social enterprise trusts.” Hollendoner explains.000 in 2040. until now. of which 40% are privately owned. Virgin and Serco. Serco’s Suffolk contract alone is worth £140 million over the next three years.000 beds.000 in 2010 to 860.900) per month! Our Analysis: The major Swiss players are consolidating and introducing far more professional management teams. It is expected that the proportion of the population aged 65 and over will grow from 390. “Remaining Acute Trusts and others – the places where these services were warehoused – are thinking about what happens down the line. Currently. using them to essentially ‘warehouse’ these functions temporarily – although for some this warehousing might be seen as permanent. he sees big growth opportunities in temporary re-habitation stays. Schneider says: “The growth in quantity alone will account for additional costs for the communities. with responsibility moving to GPs coming together in Clinical Commissioning Groups (CCGs). with length of stay dropping as it has across Europe. he says that cantons have set rates lower than headline tariffs and that the regulatory burden is heavy. the pace has quickened on this somewhat. PCTs have pushed a lot of them onto Acute Trusts (including Mental Health and Community Trusts.com additional demand of 50. “Local authorities tend to leave publiclyowned homes alone.000 people were in assisted living or care homes – he expects that to rise to 240. rather than the high-end on which competitors concentrate. “They know that September 2012 HEALTHCARE EUROPA 11 .” Margins are almost certainly far higher for Tertianum. Now that reform has passed. In particular. He says that the company’s strategy is to go for the mid-priced market. Bider says that there are several property investors including Credit Suisse who are prepared to buy properties at low rates. Private providers have the know-how to maintain high quality with only low cost increases.” There should be plenty of room for growth – Bider reckons SENIOcare has just 2-3% of the total market. Remo Schneider. which targets the wealthy – a not inconsiderable group in Switzerland. has a background in private hospitals.000 by 2030. Schneider reckons that by 2020 there will be an www. “It is madness for local communities to own or run nursing homes. There is a big shift underway towards care homes performing more medicalised care. However. these trusts will be disbanded. Despite low margins. There have been very few of these formed. 140. Post-reform. the private sector is growing. recently purchasing eight new sites.” says Bider. “There are essentially two main options facing the PCTs. like Bider. CEO of Senecura.959 (€4. We’d expect there to be fast growth in the market over the next decade. emergency response teams and health workers in the community – these tenders have been won by Interserve. the contracts are extremely difficult to establish and the encumbant workforce tend not to have the necessary management skills. Schneider says that in 2010. as in the rest of Europe. but they are constantly inspecting private players. Finance doesn’t seem to be an issue. “The other option has been for another body to acquire these services. New CEO Hannes Wittwer. Many PCTs are still holding on to some services – like community healthcare – that were meant to have been separated off from them long ago. leaving aside the requirement to tender. He says that there are 1. denies rumours that the company has been overpaying to win new contracts with municipalities.healthcareeuropa. nursing home units in Switzerland have a capacity of 90.000. In the community health care field – involving the running of community hospitals. SENIOcare’s average just 35 beds each! United Kingdom PCTs – the outsourcing challenge Primary Care Trusts (PCTs) have.576 homes in the publicly-funded market. led the commissioning of services across the English NHS.HCE news competition than in the UK or Germany. “More and more are bringing in private players. as.” says Hollendoner.” Senevita is expanding fast. so it will become more difficult for them to retain the quality of care. not all services will go down this path.

Innova plans to spend a further PLN 100 million in the next two years on the hospital. is also building a chain of primary care polyclinics. Still. Each individual is zapped a searchable PDF of our issues as well as getting over 40 news emails updates and access to our web archive. a long – and most likely fraught – process of reimbursement reform will be needed. This gives you 10 issues. the big Danish emergency services group. given the size of previous contracts. Sources in the country also tell us that there is a lot of interest in southern Poland. which mainly treats patients funded by September 2012 the National Health Fund (NFZ). “Combine Cracow and Katowice and surroundings and you have a spread out conurbation of 3-4 million people in a reasonably wealthy industrial area. The newcomers will be dependent on the prices paid by the NFZ. To subscribe contact us on (44) (0) 20 7183 3779 or email sonia@healthcareeuropa. Falck. the purchaser couldn’t tell whether outsourcing mental health providers were 12 HEALTHCARE EUROPA doing a decent job. In the community health care sector. following Advent International’s October 2011 acquisition of American Heart of Poland. Provider Cambian is trying to preempt this by developing its own approximation of payment-byresults to be offered to commissioners. If you have a team which needs to follow the market then opt for a site licence . for example.healthcareeuropa. so the value of each service is hard to determine until an outsourcer goes in and does their due diligence. plenty of players in the NFZfunded sector – including EMC and Know How – who specialise in privatising general hospitals. it can be expected to be a decently large market segment. eventually they might be broken up under reviews of monopolistic provision. We investigate. www. There are. outsourcers seem to be on the ascendancy. Our Analysis: In the psychiatric space. Our Analysis: This marks the second big entry into the NFZfunded hospital sector. “This was kind of a perfect storm: mental health is still paid for through block contracts. The ultimate goal is to grow a national chain through buy-andbuild acquisitions. in fact.” As such. and so there is little accountability in the payment method. says that he hopes to float the business on the Warsaw stock exchange by 2017. The news must have caused heartburn for Advent in the wake of the American Heart of Poland acquisition. While the private sector has endeavoured to cost its care service on an individual basis.” Something like this has happened in the mental health space: Mental Health Trusts have started to claw back medium-secure inpatient psychiatric treatment. pessimistic industry expectations were met when reimbursements for heart operations dropped substantially. This is largely the fault of the old system. So they’re trying to ‘land grab’ – that is. Krzysztof Krawczyk. They’re almost getting into competition with outsourcers. managing partner of Innova Capital. Will Carlyle get top dollar for Medical Park? Private equity house Carlyle is selling Turkish private hospital chain Medical Park through Credit Suisse and Goldman Sachs. but providers didn’t help themselves when commissioners noted that some of them were making EBITDA margins of over 30%. as Innova Capital buys gynaecological and obstetric hospital Ujastek in Cracow.com . For instance.” We hear that Innova is likely to strike other deals to buy old hospitals and greenfield sites in the area.these cost £2.HCE news Subscribe today A hard copy subscription costs £900 a year. rather than pure payment-for-activity. the market for outsourced medium-secure services actually looks set to shrink – unless outcome data demonstrates that real value for money is being achieved. The size of the addressable market isn’t entirely clear – the NHS keeps poor data on the volume of services delivered through community care. plus over 40 email news updates and access for one person to our web archive. acquire as many assets and services as they can so that they will still be large enough to be sustainable after any break-up. Eastern Europe Innova plans obs and gynae chain Polish public-sector healthcare continues to open up to private equity.250 for ten people.com.

An alternative would be for Medical Park to go to the stock market. the Pan-European subscription services company. The company claims that it is “pleased” with its EBITDA. we are told that this closeness has waned – indeed two Medical Park hospital managers at Bursa hospital were jailed briefly for infringing SGK rules in early 2012. with a small hospital in Istanbul. there may be other. Nevertheless. grew sales 60% to €16. This is because. All these losses partly reflect aggressive amortisations over 3-5 years on the new hospitals. the figures do come with a health warning insofar as they show results at a subsidiary. All this leaves a question mark over whether Carlyle will get a high price for Medical Park.” said one source. Meanwhile. although this has typically not offered much of a premium.000 to €2. This hospital was opened by the prime minister Recep Tayyip Erdogan two years ago.5 million.2 million. and so. Quite what Medical Park will fetch is questionable. The big outpatient clinic networks that have recently opened hospitals have done particularly badly. thanks to the slowdown and to the Ministry of Health deciding to issue a blanket ban on new private hospitals. Independent player Sanador.com big new hospital in Ankara. with the company’s net loss ballooning from €700. “Prices are coming down and brand name doctors are in a position to demand more money. if is serving a wider volume market than upmarket rivals like Acibadem may be better placed to weather a downturn. Today. And the losses are net profits. Hard hit was Advent International’s Regina Maria. Competitors say that integrating Euroclinic has been difficult. The largest. The figures show that the combined Euroclinic/Regina Maria business saw sales rise just €2. there is no getting away from the fact that the main subsidiaries of almost all the major Romanian healthcare groups did badly.8 million in 2010 turn to a loss of €900. through its SGK fund. which specialises almost entirely in private pay patients. It also plans to open a www. rather than a group level. although we are told Medical Park has four times as many patients. Red ink in Romania An indicator of just how tough the Romanian market is proving to be comes from the latest officially released results for 2011.healthcareeuropa. Medical Park is slightly smaller by sales than Acibadem. Memorial and Florence Nightingale.HCE news Medical Park is the largest player in the wider market of patients who are partly paid for by the Turkish health service. which acquired the Euroclinic hospital in 2010. with sales ahead 19% at €39. saw sales stall at €10. There is a lot of red ink around.7 million. The private hospital sector is also slowing down. Some observers reckon that Medical Park. which has a large new hospital in central Bucharest.2 million to €27.000 to €5. Medlife. 2012 will be more like 5%. which is building a large new hospital in Istanbul.000. Rivals have also had a hard time. After a decade of 15% annual growth. We estimate that EBITDA is in the 14-16% range. Sales in 2011 came to €360 million (TRY 820 million).3 million. but refused to disclose it.9 million and losses soar from €100.000 turn to a loss of €3. saw a profit of €2. more profitable arms within the group.2 million but also saw a profit of €600. Medical Park has launched a new upmarket brand to compete with Acibadem. in some cases. the Turkish government. We are told that the new government favourite is an outfit called Medipol. We look at what the numbers say about different sectors and the leading companies. Turkish sources say that the group used to be favoured by the government and thus won some quite interesting planning victories to build new hospitals. rather than EBITDA numbers. September 2012 HEALTHCARE EUROPA 13 . All profits and sales have to be disclosed in Romania. The bad news is that the Turkish economy will “only” grow around 4% this year.3 million. The government also officially prohibits hospitals from charging SGK patients more than an extra 90% over what is paid by the state. but there is a recognition that demand has not kept up with new capacity. The good news of the last few months is that the government has now raised the ceiling of what SGK patients can be charged from an extra 70% to 90%. However. part pays for treatment for some 90% of Medical Park’s customers. unlike Acibadem. In some cases. sales fell. Medicover.

Euromedic. but profits fell from €2. Chrieh says that the problem is that many Romanians. for instance. By buying a stake in Lux-Med. owned by Advent International. with 5% as an optimistic upper bound. the largest Polish private healthcare company. International insurer Bupa has also expressed interest.4 million to €8. saw sales rise 22% to €23. Minister of Health Vasile Cepoi said that “co-payments will be first negotiated with patients’ and professionals’ associations. The largest lab group. The majority of the subscription market is targeted at employees looking to offer their workers benefits. But we are in for a few lean years. Meanwhile the Ministry of Health has surprised no one by negotiating a delay in the implementation of co-payment for healthcare services.000. Romanian Market: 5% growth at best in 2012 Growth in the private healthcare sector has stalled in Romania. “PZU www.com . agrees: “Prices are 14 HEALTHCARE EUROPA dropping and physicians are in a stronger position to negotiate wages. the largest imaging services provider.7 million to €2.1 million to €2. particularly if a widely-expected law making healthcare insurance tax deductible passes. There will be casualties.000. the Government did not indicate any hard deadline for the adoption of co-payments. Sources at clinic provider Medicover say that the private sector is plagued by surplus capacity.6 million. These ‘subscription service’ providers offer enrolees a limited basket of healthcare services. Gral grew sales 19% to €14. Poland’s largest insurer. given weakness in the public sector. It is hard to see how smaller chains like Pelican Impex can afford to splurge €50 million on a new hospital in Cluj.1 million and losses fall from €4.3m. Fady Chrieh at fellow clinic chain Regina Maria. Competitors to Lux-Med were intrigued by the PZU move.8 million. Generali and PZU to really grow the market. Upon finalizing these negotiations. The malaise has also affected private outpatient and primary care networks. with looming overcapacity. LuxMed is being sold by Mid Europa this Autumn.” He thinks that growth in the private sector may well stall entirely in 2012. The next year will be tough.HCE news Diagnostics fared better. PZU could – overnight – build access to what could become a very large market. that still looks a safe bet. with profits tripling to €300. delivered through a branded clinic network. Our Analysis: Times are tough. might take a minority stake in Lux-Med. like Regina Maria – set to open a new over-100-bed hospital in North Bucharest later this year – will continue to grow. insurers have found their path to the potentially enormous Polish health insurance market blocked by the presence of companies like Lux-Med and Medicover. This coincided with a boom in hospital construction. PZU may take minority in Lux-Med PZU.1 million and saw profits fall to just €300. After five years of breakneck growth. Given the difficulty of such negotiations. the individual market is relatively tiny. Private equity groups like Advent (Regina Maria) and Societe Generale September 2012 (Medlife) are content to pump money into the creation of national chains. co-pays will be implemented”. during which private beds probably quadrupled over a few years. Our Analysis: The big chains. saw sales rise from €6. Synevo. times are tough for Romania’s private hospitals. following a boom in hospital construction. Long-term.2m but profits are a third at €300. with many small and midsized players looking to sell. and the recession is going to make things worse. particularly outside Bucharest.2 million. as there are very few healthcare providers who are not tied into the subscription networks. Nearest rival Bioclinica saw sales ahead 10% at €7. For many years. do not have the disposable income to go private.healthcareeuropa. This is despite the fact that Romania’s public-sector healthcare is collapsing. Pelican Impex lost 20% of sales at €7. says Chrieh. Vasile Cepoi has reconfirmed that the existing healthcare reform bill will enter parliamentary debate and be passed before the end of this year.000. This system has made it hard for insurers like Signal-Iduna.6 million. Medcenter saw losses rise to €2m on sales barely ahead at €7.

which also overexpanded.healthcareeuropa.S. It is the fourth-largest player. Lux-Med is likely to sell. are wrong. winning a clutch of outsourcing contracts with Catalan hospitals. Most observers reckon that the majority purchaser will be a large private equity house with international healthcare expertise and plenty of cash. A price between PLN 1 billion and PLN 1. The state still has a large stake in Lux-Med. www. the French reference lab. consolidated private sector to emerge. the big independent Spanish reference lab group. behind family-owned Eresa (€80 million) and Q Diagnostica. EQT on for Labco and Biomnis has a deal (of sorts) Informed sources have told us we were wrong to suggest that EQT is not interested in buying the European lab group Labco. as a reference lab. Diagnostics CRC and Balague collapse Catalan imaging services provider CRC Corporacio Sanitaria has gone into bankruptcy under a debt burden of €44 million. It will be interesting to see whether it attracts any bidders. owned by Mercapital. The latter is seen as a long shot – Centene has no presence elsewhere in Europe – but Bupa has apparently gone as far as appointing UBS. worth nearly €20 million per year. according to Spanish newspaper Expansion. which September 2012 HEALTHCARE EUROPA 15 . Observers reckon that. Balague’s debts are said to have come to €18 million. Neither CRC nor Balague. Rivals say that there were several factors behind its failure. Bupa and U. Sources at Labco questioned whether the contract had been entirely watertight – it may not cover Balague in the case of a fall in population or increased activity. Balague’s 2011 sales reportedly stood at €28 million. Furthermore. Competitors say Balague’s plight demonstrates to grasping private insurers – who have dropped prices by around 30% in the last three years – that there really is nothing left to give away. CEO Norbet Gallindo stepped down in July 2011 and was replaced by Mariana Rovira. CRC has grown fast.” said one source at Megalab. “It won the bid for Madrid in 2008 but. That would make it the third-largest player in the Spanish imaging market. and PZU potentially has the influence to get the government to favour insurers. so may be serious. Mercapital says that payment times in Spain have recently returned to 60-90 days – a sensible level. Expansion gives CRC’s 2011 sales as €35 million. our sources say that this would be misleading. rumours in the market that there will be no deal for Biomnis. earlier in September. Other lab groups say they are getting letters asking them if they have any claims against the company. We’re told that EQT. Mercapital nearly bought a 55% stake last year. The hope was that this would be the first of many outsourcing deals. but there has been a lot of resistance and it’s still the only big lab outsourcing contract in Spain. Bridgepoint and Cinven – all of whom seem keen However.com This follows the collapse of Balague. However.” But they also say that PZU has seen frequent management changes and has yet to demonstrate that it “gets” healthcare. which should allow a stronger. unlike most healthcare businesses which have been put on the block recently. They blame breakneck expansion under the previous CEO for CRC’s problems. Our Analysis: CRC could be seen as a casualty of recent cutbacks by Spanish health authorities. the fact that PZU is even talking about taking a minority stake is interesting. Medicaid thirdparty administrator Centene have also expressed interest. In other words: these failures are best seen as examples of creative destruction. CRC therefore looks similar to Balague. it didn’t really have the expertise in volume testing that it needed. behind CRC. That narrows the field to outfits like BC Partners. It owed social security €1 million from 2011 – the debt that finally led to bankruptcy.HCE news has huge distribution and a lot of money. EQT. taking on a large outsourcing project with 6-8 Madrid hospitals.2 billion sounds reasonable – EBITDA was just under PLN 100 million in 2011. Concerning Balague. That figure includes a joint venture with Ribera Salud to run a number of public hospital labs in Madrid. on sales of around €700 million.

HCE news sparked the current bid process for Labco. the Spanish public hospital sector is fairly efficient.” The one potential bright spot is outsourcing. Brazil and Mexico are very much where Spain was in terms of penetration levels twenty years ago. “Columbia. he doesn’t expect to see a big expansion in Alzira-style outsourcing. The company is unusual in that it is majority-owned by management and the owners of the many smaller businesses that it has acquired over the last five years. He’s a safe pair of hands who knows the business very well. New CEO at Euromedic Big imaging services provider Euromedic International has appointed Dimitris Moulavasilis as its new CEO. We already have a lot of capacity right now. It also has a record of getting out at the right time at the right price. USP – Mercapital has owned and sold a lot of the best private healthcare operators in Spain. He sees huge opportunities in Latin America. The truth is. of which the public sector accounts for 60% (€600 million) and the private insurers. but there are also fantastic opportunities to partner with the public sector. But an offer of 10 times EBITDA was not good enough for private equity investors such as 3i. This has led to long queues and a big increase in self-payers. Quiron. the second largest private imaging services provider in Spain. He doesn’t think the next four will be good either.” He accepts that there will be union resistance. It is about to buy an operator that works almost entirely for the private sector. quite probably.” We are told that there will be no change of strategy. following the departure earlier in 2012 of Richard di Benedetto. “It doesn’t make sense to ration imaging. PET and MRI imaging at roughly €1 billion.” While the state may outsource more medical services to the private sector. we are likely to see trade sales at Unilabs and Amedes or. a merger bringing all three together. We’re also told that Biomnis is now sitting on a deal – although it is not clear whether this is a partial or complete sale.healthcareeuropa. providing Labco fetches a high enough price.” At the same time he says there are already powerful players out there. EQT’s initial offer. particularly for services such as imaging and laboratory tests. By outsourcing hospital imaging units to the private sector. reportedly around 10 times EBITDA. Hospiten. It only leads to higher costs later. This summer. cash payers and mutuals the other €400 million. It is not surprising that Mercapital has just one healthcare service group – Q Diagnostica – left in its Spanish portfolio. September 2012 “The last decade saw a big increase in the imaging parc in Spain. remains very interested in potentially bidding for the group. The private equity house already owns Q Diagnostica.” He says waits of six months for non-urgent cases are not uncommon now. but says that “in today’s environment efficiency. “That model works best when there is a need for a new hospital. He puts the Spanish market for high-end CT. Barallobre freely admits that the last four years have been tough for Spanish healthcare. The reaction to the recession so far has been to ration the number of imaging tests and to offer X-rays instead of MRIs. “The number of privately insured individuals is unlikely to increase. We talk to Mercapital partner Carlos Barallobre about the deal and the Spanish imaging market. Q has turned to South America. Around €210 million of the public sector budget has already been outsourced to private players. productivity and cost control count for a lot”. with twenty centres in one Brazilian city. To grow. was what prompted Labco management to start a sales process. Here. who would barely turn a profit on that multiple. but has been selected. He thinks that quite a large slice of high-end public sector imaging could shift over. But Q is in a dialogue with policymakers and politicians about outsourcing.com . Our Analysis: It is clear that. he says the Spanish regions are holding preliminary talks. Managers who know the company well are happy to see Moulavasilis appointed. “He has worked his way up from country manager and was running the diagnostics division. A CFO has yet to be announced. “You have two big quoted www. 16 HEALTHCARE EUROPA Q Diagnostica set to expand in Brazil Mercapital is about to buy a large provider in Brazil which will double sales to €80 million. the state can achieve big increases in productivity. the company sold home oxygen outfit Gasmedi to leading pan-European homecare provider Air Liquide.

Our Analysis: The German lab market has been growing extremely quickly for the last two years. “Who knows? Q could be their bridge to Europe. From October 1. It looks as though the ceiling will probably then stay in place going forwards.” he says. the Kassenärztliche Vereinigungen. The only hope is that notoriously resistant self-referrers can be persuaded to change their approach. In practice. the KVs have been promising to rein in self-referrers since 2009. between €4 for gynaecologists and €40 for specialised tests from rheumatologists and endocrinologists. this would amount to €400-500 million of potential additional sales. We can see why the KVs have acted. which represent the doctors. The problem is that the cuts will be introduced quickly. A ceiling of 4-6% will greatly reduce profits and will far outweigh the equivalent organic growth rate. It may essentially make the growth of the last two years moot. for instance. Prices are high and money has been reinvested in ever more lavish equipment. agreed at the end of June. A ceiling is likely to be imposed by all KVs nationwide from October 1 onwards.healthcareeuropa. This varies from 55-90% of sales for most labs. Thijs Veerman. all this should add expand the market significantly for the big labs. Assuming around half of these tests are actually necessary. however.9% budget ceiling from July 1. as it cannot be disbursed to investors. So in answer to our question: there is little or no upside. It is believed that the self-referrers make sales of nearly €1 billion. though. chief executive of Star-MDC. will really enforce this.9%. Staff numbers may look high. they will deter specialist outpatient doctors doing their own tests. The ceiling only affects the lowprofit portion of sales paid for by the statutory insurers. brings together Medial (€25 million in 2011 sales and 431 staff) and Atal with (€23 million in 2011 sales and 300 staff. others say 4-5%. As healthcare budgets come under scrutiny. are opposed to both. Opinion varies on what this will be. Some groups claim that they are already seeing more business from former selfreferrers. Atal-mdc and Medial merge German labs are wincing after the regional doctors’ chambers. Some groups (such as Star-MDC) have substantial imaging parcs as well. in return. But operators are still worried that the much higher rates for private insurers will be targeted in 2014. The left. “The labs are an easy target.9% ceiling Operators say that a few KVs introduced a 6. Sonic. The right-wing. But is there an upside? Two of the big Dutch diagnostics players have merged. these selfreferrers will only be paid a predetermined maximum average fee per request – for example. says that the not-forprofit sector is already consolidating because “substantial” price cuts are expected. elections are on September 12 but the resulting coalition won’t take form until the end of the year. Groups might also be pursuing mergers in expectation of market liberalisation. There are around 100 facilities in the country serving the outpatient sector. Why offend thousands of doctors instead?” Apparently. In theory. He says that many other groups are in merger talks – he personally knows of a dozen currently underway. well above €100 per episode. while it will take the best part of a decade before the public sector hospitals begin to outsource services to partners in earnest. who are slightly ahead in the polls. even a little capitalism. but keep in mind that both companies have patient-facing employees drawing blood). This is a severe move. Observers expect more deals to follow as the sector prepares for price cuts and. The Federal KV plans to squeeze out unnecessary testing – many self-referrers are billing average fees well above €80. introduced a unilateral directive on budget ceilings from October 1. if victorious. some of the labs we talked to are sceptical that the KVs. The KVs claim that. The www. although these should be balanced to some extent by growth in public hospital outsourcing in Western and Southern Europe as countries limit healthcare budgets.HCE news groups Fleury and DASA in the lab and imaging sector. That depends on the forthcoming elections. would allow external shareholders and profits in the sector. probably in 2014.” He expects them to eventually leave Latin America. saw organic growth of 6% in the year to June 2012. we may see price cuts and budget ceilings imposed elsewhere. and in some cases. Some expect 6. possibly. September 2012 HEALTHCARE EUROPA 17 . The merger.com German labs hit by 6.

There is nothing to stop them buying MDCs. but from a business standpoint it makes a lot of sense. with sales of around €55 million. Medial-Atal We talk to Jaap Dijkman. Even if the left won. The hospitals have a lot of imaging equipment and are also trying to reach the primary care market. Sonic does do around €50 million a year in Dutch reference tests from Belgium. but patients want to go to their local hospital so making the lab space a real market should be much easier. which has a lot of expertise in hospital outsourcing. There are other good reasons to merge. Why is this happening? JD: Everyone is aware that there is some spare capacity. HCE: And are they moving in? JD: Not so far. Dutch prices for volume tests are high right now compared to Germany. I can’t see it myself. while the insurers force prices down in secondary healthcare. We also know that the price competition in the hospital sector will eventually affect the lab space. which has managed to create a completely integrated lab in which the normal professional siloes have been removed. who will take over as CEO of Medial-Atal from October 2012. and they still are. looking at the polls. 18 HEALTHCARE EUROPA September 2012 If the large international lab groups started moving into the Netherlands. HCE: The Netherlands has around 100 of these medical diagnostic centres (MDCs) serving primary doctors. that would change. I think the existing reformist health minister is likely to get her job back. HCE: Do you expect hospital outsourcing to grow? JD: Yes. but they wouldn’t be able to pay dividends. Generally. we bring together Medial. What do you make of that? JD: Yes. but not immediately. HCE: Do you see that changing? JD: Yes. but it is also clear that it is much easier to create real competition in labs than it is in hospitals. You can send your test anywhere. aren’t they? JD: Yes. Outsourcing of a core process is a big step. without giving away equity. HCE: In most countries public hospitals have been very reluctant to outsource to private operators. with Atal.HCE interview Jaap Dijkman. doesn’t it? Some have large imaging parcs as well – and they’re all not-for-profits. We’d like to expand to other hospitals in our region. CEO. I doubt there would be support for a retreat from market reforms in healthcare.com . The newly-merged group is now the largest diagnostics laboratory in the Netherlands. It partly depends on who wins the autumn election.healthcareeuropa. JD: Yes. We see big benefits in scale and we will move to a much more efficient new building in 2014. With the www. That’s where the money right now. A centrist coalition seems most likely. HCE: So do you think we will see a change of government this Autumn in the Netherlands? JD: Probably not. but no one is competing for the volume market yet. with forecast 2012 sales of €60 million. I think the managers running MDCs feel that they don’t have much need to access capital except for constructing new buildings – and we can get access to capital in that case from property companies. some MDCs are very active here. both for doctors and professionals. particularly in West Holland. and that has historically been true for the Netherlands. We already have four hospitals that have outsourced to us. In our case. She is fairly popular. HCE: You mentioned that some diagnostic centres do imaging as well as lab tests. HCE: You have recently merged with Atal and we’ve also recently seen LabNoord merge to create the second largest group.

while doctors are still in charge at the macro level. It’s something they value that you won’t find elsewhere. HCE online Subscriptions to Healthcare Europa don’t just include 10 big issues like the one you’re reading.com September 2012 HEALTHCARE EUROPA 19 . Our subscribers additionally receive 40 email news updates with the biggest headlines sent straight to their inbox. sectors and companies working across the whole spread of mainland Europe. Some studies from insurance companies show that there is clearly excess capacity and that hospitals can be a lot more efficient if strengths are combined across them. The rest we do at a central lab near to the four hospitals. Insurers will need to insist on closing capacity – which will be politically difficult. We keep a small lab in the hospital to handle hot tests and the capacity to handle emergency demand peaks. www.com. but it is very difficult to enforce the regime. To subscribe contact us on (44) (0) 20 71 83 37 79 or max@healthcareeuropa. HCE: So. What’s more these headlines link directly to the unique Healthcare Europa website where subscriber can access our web archive . So merging individual units is difficult and I know of many projects that were eventually shelved. you see the hospital landscape changing fast in the Netherlands? JD: Well… yes and no. We have also developed IT applications that inform general practitioners about the tests their patients are having in the local hospital. But hospital managers tend to run these organisations at a fairly high level. There’s a lot of talk of mergers between hospitals. We now want to break down the divides between the different disciplines within the central lab.HCE interview pressure from the insurers mounting.an invaluable way of keeping up to date with what is happening in the sector as well as a unique research tool for finding out more about approaches to healthcare in countries.healthcareeuropa. outsourcing becomes more and more likely. Our model is straightforward. The insurers are applying price pressure and hospitals are not supposed to exceed their budgets.

Now it’s their business.” It is extraordinary that. but what we tenants did behind closed doors was our business. But Kaiser Permanente sure is doing something right.HCE editorial The more the hospital exceeds its cost-reduction and quality-improvement targets. Chief Executive of the King’s Fund. one thing we hear at Healthcare Europa a lot is this: we wouldn’t want a US-style system here. Helios and other operators are changing that.com . Bohmer and Kenegy: ‘disruptive competition’. Atul Gawande. he could damage his career. hospitals and medical groups have mainly had a landlord-tenant relationship with doctors. writes on how hospitals and doctors can learn from restaurant chains. HCE But perhaps I shouldn’t be surprised. the more money it can keep. “Can we move beyond the polarised debate and take a look at what the benefits and problems of competition actually are?” The problem is that everywhere. and moving through discussions of the ‘wrong’ and ‘right’ kinds of competition.” Why disruptive competition is a good idea in healthcare services “Can we combine competition and integration?” asks Chris Ham. this was not the case.healthcareeuropa. We can try to produce more Kaisers. With that as a starting point. 20 I recently chatted to a junior doctor in a large London NHS teaching hospital who says that. and others link financial reward to clinical performance. professor of surgery at Harvard Medical School. Ham clearly thought that the answer was yes. too. Until now. my employer’s new contracts with Medicare. We just joke that his patients are ‘special’. but it is extraordinary to read Gawande’s statement in the article that “this year. To what extent are patients being put on controlled pathways? To what extent is data collection on best practice really driving treatment on a day-by-day basis? No one does anything about it. BlueCross BlueShield. Editor. The Cleveland and Mayo clinics in the USA are also pioneering here. apart from in Germany and the Alzira franchises in Spain. Presenting at the Summer meeting of the European Health Policy Group in London. I say “seems to be” because it is extremely hard to judge how far operations and stays in hospitals are really being standardised. Ham reached a point of consensus with the academics Christensen. This means that hospitals have to deploy a lot of tact and diplomacy. can improve outcomes. HEALTHCARE EUROPA September 2012 Taking a look at the American model. Max Hotopf. If it misses the targets. it will lose tens of millions of dollars. Medicine seems to be depressingly far behind on some basic issues. principally through information transparency – show a surgeon that his operations underperform. What can hospitals learn from casual dining chains In an interesting article in the New Yorker. They offered us space and facilities. “It is very hierarchical and yet everyone knows that some surgeons have far more patients who routinely end up on critical acute care lists than others. www. This is a radical shift. until 2012. and eventually he will give up the “my patients are different” tack and start paying attention. doctors remain the customers – the people who generate most of the business – rather than salaried employees. if he criticised the work carried out by one of the consultants. carefully targeted.

companies like Telemedica promise that this time will be different. Sweden. France. David Cameron has personally been pushing telehealth. oxygen. That is a contrast to where incumbent providers lock down revenue streams – turning their noses up at radical new medical technology or treatment methods to preserve old products.com September 2012 HEALTHCARE EUROPA 21 .” But what does this mean? Given how often homecare was cited as an example – particularly in France and Italy – it means solutions like case managers co-ordinating care.” explained Ham. Switzerland). “What you need is integration on the clinical end. Denmark. and its views have had a certain simpatico with those of the government.000 for a searchable pdf site licence.” But old businesses beware: the point of Christensen et al. This has repeatedly scuppered attempts to bring eHealth into the health systems of Europe. This means that it’s less important arguing about what the overall structure should look like. To find out more visit www.healthcareeuropa. academics and policymakers and has detailed chapters on the market in no fewer than 12 countries ((Czech Rep. “Concentration of integration within the treatment of a specific disease. Netherlands. secondary and tertiary care. you get what we see in Italy: highly-sophisticated homecare companies providing complicated care.com www. says Ham.’s paper is that we need disruptive competition where new competitors enter and change medical and business practices. The report costs £2. Spain. rather than the organisational end. direct distribution etc) and gives our growth forecasts through to 2017. when payment mechanisms are implement poorly. and thus their revenue stream. Finland. The King’s Fund is well respected. It also sizes markets at sub-sector level (home dialysis. and a laserfocus on care pathways. If you have this structure in place. Then you can have an integrated system of disruptive competition.healthcareeuropa. “Integration is important on the clinical end. is little better than no competition at all. meshing smoothly with the public system thanks to a solid systemic framework that’s there to support them and – more importantly – the patient. It also means that this integration has to be broad: as Ham said. Germany. in homecare: clinicians fear being cut out of the loop by new technology and processes.” said Ham. Italy.500 for a paper copy and £3. Poland. HCE reports Opportunities in Healthcare: The Medicalised Homecare market report now available The 230 page report is based on hundreds of interviews with entrepreneurs. That. treated as its own separate issue from everything else. It includes profiles of the top players and sales figures for the top 60 companies in the sector.HCE editorial “That’s where you come to the point of combining competition and integration. open dialogue (aided by technology) up and down the systems of primary. will just lead to new silos. England. But will it? That depends on how hard the NHS is listening to people like Chris Ham. They fear losing their patients. what’s more important is making sure doctors on the ground are working together. The flip-side of the coin is what we’ve seen with telemedicine and.

A single doctor can’t deal with every condition. The alternative is the public sector. The government www. People in Russia do not always have much confidence in public sector healthcare. MD Medical Group MD Medical Group – the second-largest private provider of healthcare in Russia – specialises in obstetrics and gynaecology.HCE interview Elena Mladova. an unknown portion of the 90% will then be refunded by their insurers.350 people between its one hospital in Moscow. The group is opening an eighth clinic in Perm and plans two substantial new hospitals: one in Moscow. We also offer everything under one roof. By law. Once you have been accepted for IVF. with the remaining 10% paying via private healthcare insurers. HCE: Tell me about your average patient? EM: She is a woman of 30-40. This is done to increase the loyalty of the medical community and ensures a certain level of referrals. HCE: What do you offer in comparison? 22 HEALTHCARE EUROPA September 2012 EM: Comfort. there is still a wait of probably a year before treatment. Prof. Mark Kurtser. so she can come directly.3 billion (€32 million). They will do the research and have a dialogue with the doctor about their choices. The group employs 1. although sometimes as low as two. It has a presence in St Petersburg. you’ll get one nurse to 25 patients. with EBITDA ahead 19% at RUB 1.healthcareeuropa. Also access to the latest technologies and approaches. Child birth starts from RUB 150. patients are increasingly well informed by the internet. A cycle of IVF with us costs up to $5. Ufa and Irkutsk. Sales in 2011 rose 45% to RUB 2. HCE: What is the Russian government’s approach to private healthcare? EM: Broadly speaking. confidence and access to the same doctor throughout. the other in Ufa. HCE: But can she afford your services? EM: Increasingly. The business is owned by its founder. as by doing so they lose them? EM: No. I’d say our target now is the top 30% of the population. There are also long waiting lists. so we can save her time. Typically. including medicines which are normally changed as extras – the same as in Europe. Kiev. it announced plans to list on the London Stock Exchange. including diagnostic tests. as well as paediatrics under the Mother and Child brand.com . Three years ago we established our own training centre here that offers educational programmes for doctors not employed by us. private healthcare companies are zero-rated for corporation tax until 2020. she may have a child with a medical condition or she may face a difficult birth. HCE: And what is that like? EM: Wards are typically 4-6 patients. yes. We talk to CEO Elena Mladova about patients.9 billion (€71 million). HCE: I thought that Russian doctors were unwilling to refer patients. HCE: And how is she going to find you? EM: Our brand recognition is pretty high. MD’s business model and the size and growth rate of the Russian market. she’s middle class.000).000. seven outpatient facilities and three outpatient franchises across Russia and the Ukraine. CEO. Around 90% of our patients pay cash. but we qualify on all counts. But there is a very low ratio of doctors and nurses to patients. I don’t think that is true. Or she may be referred by her doctor. There are provisos designed to stop distributors from getting the tax break. She may need IVF. In any case. On September 17.000 (€4. However. very favourable. which make it problematic for obstetrics and fertility.

There is tremendous potential in the provinces. keep up cooperation between centres and successfully launch new projects. They acquired their first hospital building www. trauma and related services. but is still low. bribes paid to public sector medics. our approach is to start by buying an outpatient clinic. what is your strategy? EM: With Lapino we will be able top expand into other areas. EM: That is not our model. They expect the legitimate sector to grow 2. Over 75% of our doctors are employed full-time.healthcareeuropa. but I don’t want to be drawn into how many centres we will establish over the next five years! My main concern as chief executive is to ensure that we maintain quality levels. that is simple. what is your business model? Most private hospitals are hotels. then we add a hospital.8 billion (€44 million)) and so is not a direct competitor to us. We’ve also built up our diagnostics offering while keeping a focus on our key areas of women’s and children’s health. which are used by freelance doctors to carry out their work. but it only has 8 obstetrics beds in its inpatient facility. we are building a further 280-bed hospital at Lapino in North Moscow and we have a site for a hospital in Ufa of 30. Isn’t it a sort of Russian Switzerland in a sea of much poorer people? EM: Maybe that used to be the case.8 billion) and European Medical Centre (Healthcare Europa estimate: 2011 sales RUB 2. The grey market. It’s a good company. There are 13 cities that have a population of over a million people.HCE interview is talking about funding private healthcare with public health funds from 2015. Expanding nationwide is a difficult challenge for them and they lack inpatient capacity. which they plan to renovate. smaller competitors in your market? EM: The nearest is Scandinavia which covers the St Petersburg market (Healthcare Europa estimate: 2011 sales of RUB 1. such as rehabilitation. HCE: So how do you differ from Medsi. gynaecology and paedatrics. It also wants to see an increase in the birth rate – which is rising. which is Muslim and very family-friendly. with the grey market staying static at RUB 104 million (€2. We are also about to open our first outpatient centre in Perm in September 2012.25 billion).5 billion). There is a lot of potential. HCE: So. HCE: And other. That’s what we’re doing in Ufa. HCE: So.6 billion) are also generalists with a strong outpatient focus. The two other large groups are slightly smaller than us. particularly those in our core area of obstetrics. if it’s popular and works well. which with 2011 sales of RUB 6. although the exact form this would take is not yet clear. It is focused on outpatient services and doesn’t specialise in OBGYN.3 billion (€155 million) is far larger than you? EM: Well. If we have women with heart problems. HCE: How large is the wider private healthcare market in Russia? EM: Recent figures for 2011 from Frost and Sullivan put private medical insurance at RUB 76 billion (€1.44 billion) – a total of RUB 378 million (€9.5 billion).2 times by 2016 to RUB 855 billion (€21 billion).com in Moscow last year from the state. But we directly employ most of our staff. then we will bring in specialists who will conduct a few sessions a week at our centres. is a further RUB 104 million (€2. There are also some very wealthy oilproducing regions. September 2012 HEALTHCARE EUROPA 23 .000 square metres. Elsewhere. the same as our existing Moscow hospital.8 billion) and out-of-pocket at RUB 302 million (€7. HCE: You are in Moscow. Medicina (Healthcare Europa estimate: 2011 sales RUB 2. but today we estimate that Moscow accounts for just 20% of the market for private healthcare in Russia. We have a 250-bed hospital in Moscow. We design and build our hospitals. Our competitors are almost all centred on a single city. Medsi is much more orientated towards providing services for patients with voluntary health insurance.

So. Medirest. big outsourcers are offering ‘integrated outsourcing’. to a lesser extent.food. in these two Nordic countries. for instance. we have hospital privatisation. This involves the entire management of. penetration rates and innovation in soft outsourcing across Europe. cleaning and services such as portering or internal logistics . Hinchingbrooke in the UK. outsourcing. A third category is business process. This would include industrial gas giants Air Liquide and Linde’s homecare efforts across the continent. The fourth category. in Spain. The supply of oxygen to patients at home could also be considered outsourcing. So what do the players in soft outsourcing look like? And how are markets developing? In general. Aramark and Dussmann. The sector can be divided into soft outsourcing . First. the Czech Republic. St Goran hospital in Stockholm. The only examples in Europe are the Alzira model in Spain.the two largest players . we have a fifth category: functional privatisation. everyone seems to be invading everyone else’s space. publicly-run care homes are gradually being replaced by new private nursing homes. human resources and accounting. What counts as privatisation and what as outsourcing is a fine line. a Generale de Santeowned hospital in Italy and a number of smaller municipal hospitals in Poland. 24 HEALTHCARE EUROPA September 2012 Beyond functional outsourcing. It is easy to ignore the big outsourcers when looking at private health and social care providers.healthcareeuropa. Increasingly. smaller. to the health and social care sectors. Aramark. however. In soft outsourcing that means Compass (Medirest). This is the first of a series of articles looking at the outsourcing sector. procurement. We estimate that in the UK. often tied into PPPs. the running of municipal homes is being outsourced on long contracts to private operators. All of these services are non-medical. Compass (Medirest). It is very big business indeed in some countries. some definitions. cross-industry outsources are precisely where a lot of the outsourcing activity is happening.com . Finally. sterilisation and even (in some Italian hospitals) the outsourcing of nursing services. Recruitment of nurses and doctors could also be considered as medical outsourcing. Sodexo. these companies are moving into medical outsourcing. as practiced in Germany and. For instance. Increasingly. In Sweden and Finland. for instance. is medical outsourcing.and hard outsourcing looking after equipment and buildings. Consolidation varies hugely across the continent. the sector is increasingly dominated by large. then. even billions. had sales of over €600m in healthcare outsourcing in Europe alone in 2011. the Netherlands and Sweden. in most European countries. But the big. Meanwhile. This is extremely rare. in which they essentially offer to take over all non-medical functions for a healthcare service provider. which can be seen as a half-way house to full privatisation. a hospital . Poland. several (soon-to-be-axed) PPPs in Portugal. You also have outfits like Serco in the UK who do both soft outsourcing and business process outsourcing.including clinical delivery being outsourced to a company or consortium. This covers diagnostics. Dussmann and ISS have divisions with healthcare sales worth hundreds of millions. regional players www. covering administration. Some are also offering contracts covering all non-medical support services for a given institution. ISS.have over 60% of that part of the market which has been outsourced. In general. where ownership changes from the public to the private sector. Sodexo.HCE feature Soft Outsourcing: The Picture Right Now HCE here provides an overview of the business models. international players. Germany and Italy. Medirest and Sodexo . there is a substantial nursing home outsourcing market. or white collar.

” This would suggest that the market will change substantially over the next decade. development director of healthcare services at Medirest reckons that the larger European soft markets . But theB2B survey found that managers in the UK. We suspect that this is the precise reason that it has occurred so much faster here than in Northern Europe. outsourcing would be particularly difficult. put penetration rates for soft services in the UK at around 30%. The situation in Germany and the Netherlands is not helped by sales tax traps which means that hospitals (which are sales tax exempt) compete on an uneven playing field. at a serious disadvantage. Multi-vendor managed diagnostic imaging outsourcing is soaring by 30-35% a year. While a recent survey carried out byB2B International on behalf of Medirest suggests that the budget crisis has left many hospital managers much more open to outsourcing in general.Portugal. the company feels the pick up in activity levels has been a little disappointing. possibly longer. who have to charge VAT at 20+%.HCE feature dominate are more common. In the case of France. one would have thought. Non-medical outsourcing is much less frequent in the Netherlands. This suggests that there is a strong commercial rationale for the French public sector (which is not renowned for its efficiency) to outsource a great deal more. “In the UK and elsewhere. In Germany. This immediately puts external players. Growth rates in soft outsourcing in Europe are fairly low. These countries have rigid labour laws and so. reckons that BPO outsourcing by the NHS in the UK will grow by 20% per annum over the next few years. Other sectors beyond soft outsourcing are growing much faster. puts that figure at around 12%. It has been very slow and we see no immediate sign of that changing. B2B’s survey suggests that BPO . compared to 5-10% in France. An Italian survey found that the major reason given by public sector hospitals for outsourcing was “general institutional pressure relating to labour force management”. Iddon at Medirest points out that penetration rates for the outsourcing of catering in private non-healthcare sectors often reaches 90%. British BPO outsourcer Capita.healthcareeuropa. particularly in North and West Europe. there’s be a long way to go. laundry and cleaning . Take the way Serco and Virgin are pioneering new contracts in the UK. “Penetration rates in the UK have risen from 30% to around 35% in the last decade. the markets with the highest penetration are in souther Europe . Guenter Neubauer at IFG in Munich says www.will grow fast elsewhere too (see separate article). assuming a profit margin for the hospitals of 10%. In Turkey.3% in 2008. in its nine-month report. which handles soft outsourcing and BPO in the UK.com that. But Iddon is realistic. Prof. On the face of it. he points out that Scotland has stated that outsourcing by public-sector healthcare organisations will cease at the end of current contracts. saw 2.” Indeed. according to Rob Piconi of Mesa Medical. In general. the last two years of recession has led to cost pressure in the market But growth in soft outsourcing is much faster in some developing markets. there is still some unwillingness from the public sector to outsource such services. hospitals outsource internally to captive limited companies that they own and which then carry out work for other hospitals as well. he says that. In fact. for instance. the percentage of hospitals outsourcing at least one service rose from 70. especially as clients are looking to focus on their core activities and become more efficient. Italy and Spain. On the contrary.8% in 2001 to 93. Outsourcing can be seen as staid and stodgy.are growing at around 2-3% a year organically. Nataliane Thoulon. saying that expansion was particularly modest in Europe.7% organic growth in healthcare. this seems to reflect unease with the notion of outsourcing a public service to the private sector.so far. this is puzzling. Germany and Italy sometimes had similar concerns. Our data suggests penetration rates here of 70-90% for services such as patient feeding. Mike Iddon. France and Germany.and particularly IT . Sodexo. but new markets are continuing to emerge. Both Compass and Sodexo initially said that the UK was the most advanced market in Europe. vice president of strategy and development in global healthcare at Sodexo. Iddon feels that the outsourcing proposition is still very compelling however. for instance. the private sector needs to be able to undercut them by 30% before they can even begin to compete.such as patient feeding. It is interesting to note that Sodexo estimates that private-sector operators in France (who carry out over half all surgical operations) outsource over 50% of their soft services. Serco. where they manage everything apart from clinical September 2012 HEALTHCARE EUROPA 25 .

Ascertaining real penetration rates is difficult. In some cases.com . Spain = Puig-Janoy. but about focusing on the delivery of medical services. However. but there have been a number of academic studies in different European countries over the last decade. a useful picture of the market emerges. If an outsourcer has built a good and trusted relationship with a hospital.” Churn rates in most of these sectors are very low. Still. This is probably a reflection of the power wielded by medical professionals. catering. Other services it offers in the USA include ways to help insurers reduce administration and enrollment costs and working with insurers to help them improve outreach services. academic studies typically show that a large proportion of hospital management is happy with the outcomes from outsourcing. is not overwhelmingly accurate. Or consider how Accenture is building new services aimed at the small percentage of chronically-ill patients who cost a fortune. Adna Kisa and Mustafa Zeedan Younis 2007 France & USA = Olivier Aptel. This. They could not run patient feeding for a hospital.The Bird’s-Eye View Steady and surprisingly skilled would be a good description of the soft outsourcing industry today. of course. we have had to roughly interpret the results to bring them into line with the other categories. This figure is inflated slightly by closures due to hospital rationalisation. Iddon says it is most unlikely to lose a contract.than to non-medical outsourcing.HCE feature services delivery. It is a long and hard journey. Jaume and Pol Perez Sust 2003 Italy = Manuela Macineti 2008 Turkey = Vahit Yigit. Managers need to realise that outsourcing will actually give them more control. Soft Outsourcing . Food. there has been more resistance to the outsourcing of medical functions . The outsourcing of soft services is not all about saving money. Stats include outsoucing to hospital-owned enterprises. facilities management and logistics are all run by a single partner. not less. Some categories may not be directly comparable and the studies were done at different times. HCE estimates SERVICE CLEANING LINEN FOOD TRANSPORT IT TURKEY 2005 32 USA 2003 57 FRANCE 2003 27 PORTUGAL 70 63 24 11 80 8 16 18 65 11 14 20 SPAIN 2003 (MUNICIPLE) 17 47 ITALY 2008 GERMANY 2007 98 67 94 37 95 84 67 15 NOTES: Germany = Brois Augurzky. These typically ask a sample of public-sector hospitals what services they have outsourced and give some measure of growth. “Two or three unskilled but bright people might succeed in setting up and running a restaurant. Almost everywhere. and that delegating services like cleaning and catering to experts who have developed detailed methodologies is likely to lead to better quality. Global hospital outsourcing. Iddon makes the point well. by combining their data analytic skills with medical services. Michel Pomberg and Hamid Pourjalali 2003 26 HEALTHCARE EUROPA September 2012 www.such as imaging and lab diagnostics . Around 20% of the contracts (typically of five years’ length) change hands. Dilaver Tengilimoglu. Markus Scheuer 2007. We’ve aggregated the results of some of these studies (see table below).healthcareeuropa.

even more controversially. stronger and more lucrative partnership with public providers is questionable. ISS and Sodexo . France.but roadblocks remain. in which one operator takes over all site-related support services. It plans to introduce these services into Austria. “It is easy to talk about partnerships. HCE September 2012 HEALTHCARE EUROPA 27 . A more politically acceptable half-way house would be to hand aspects www. Thoulon at Sodexo says: “The problem is that we are perceived as the people who provide commodity services such as food or cleaning. makes change extremely difficult.healthcareeuropa. giving a private operator complete control. for instance. which they perceived as an area where they were not executing well. Aramark. is managing community hospital and outreach services for the English county of Suffolk. Others had deep reservations about the idea of public sector services being outsourced to private players. The end goal is to become a fully-capable ‘strategic partner’ for public-sector providers. Dussmann. Medirest has also moved into sterilisation.are following a similar policy of trying to become strategic partners to public healthcare.HCE feature Sector Strategies The main drive we see from soft outsourcing providers right now is to move into new areas. As Thoulon admits ruefully: “Everyone is trying to become strategic partners by offering a wider range of services. buying 70% of Italian player Sterilitalia. All of the big groups . poor quality and possibly higher costs. so even this approach is becoming commoditised!” Iddon also questions where the approach works. Whether offering a wider portfolio. Whether such an approach would lead to long-term savings is questionable. Serco. Carol-Ann Morgan at B2B says that responses covered the spectrum. as existing labour relations and management would remain untouched. The big buzzword now is ‘integrated facilities management’. A third of those interviewed were outsourcing converts.com of the management to a Serco or a Compass. Meanwhile.” Essentially. Neubauer has tried hard to get policymakers to remove it in Germany. The Future Soft outsourcing is going to grow fast.” She says that this reservation was particularly strong in France and Italy. particularly as public budgets are cut . Aramark has moved into third party maintenance and the provision of second-hand imaging equipment with the 2010 acquisition of MESA Medical in the USA and Europe. outsourcers are looking to move up the food chain. He reckons that the statutory insurers alone could save over €2 billion per year if they were able to use private outsourcing companies. Take the bankrupt South London hospital trust. as well as running a diagnostic lab joint venture. in partnership with a more successful neighbouring NHS hospital trust. Sodexo has a joint venture with Labco to sell diagnostic services. The sales tax trap might just be the main impediment to soft outsourcing across Europe. The main reason to outsource was not price. however. Germany and Italy. Market research shows demand strengthening Medirest recently commissioned market research company B2B International to conduct interviews with 35 32 CEOs and CFOs in public hospitals in the UK. but rather a desire to improve efficiency and add value by allowing board members to concentrate on healthcare delivery. but most customers primarily see us as contractors at the moment. a third skeptics and a third were individuals who had yet to be convinced either way. to sell them to a Ramsay or a Helios. Respondents were largely concerned about loss of control. Germany and Italy. which includes more skilled service. really leads to a deeper. but that even in the UK B2B talked to hospital trusts who were not particularly keen. there is a way to go yet. Dussmann has moved into sterilisation. “We had people who saw outsourcing as the way forwards.” Offering a wider array of services may give you more leverage. The research found that many executives were much more willing to outsource IT. Entrenched interests among hospitals.Compass. The politically controversial option would be to hand them over to an operator like Circle (functional privatisation) or.

From there we’ve moved out to work with more hospitals – we’re currently working at six acute sites across the country – and to focus on expanding our integrated service contracts – such as with the recently-opened Forth Valley.com . but it’s for a large community – covering 600. where we were involved in designing the hospital. It’s worth £140 million over three years. We’re performing all of the management services. ICT. Our core services are estates and facilities management. procurement. Serco How much and how far will the different NHSs in the UK go in outsourcing services to the private sector? We talk to Valerie Michie. On top 28 HEALTHCARE EUROPA September 2012 of that. and we’ve recently won the Suffolk contract to run the region’s community services. It’s a natural progression from previous work we’ve done managing community hospitals in Norwich and Braintree. We also just won our first community services contract in Suffolk. Of course. scheduling and billing. which is running a pioneering community care project in Suffolk. deals like Circle’s functional outsourcing of the entire Hinchingbrooke hospital shows there is far. HCE: Tell us a little bit about Serco’s presence in the health sector? VM: Well. HCE: What drew Serco to the health sector? www. specialist nursing. as well as services for community nursing. HCE: So you’re trying to expand the scope of service provision? VM: Yes.healthcareeuropa. and we’re working with partner organisations who are delivering the clinical services: South Essex Partnership University NHS Trust (SEPT) and Community Dental Services (CDS). managing director of health services at Serco. an organisation delivering BPO services to a number of NHS organisations. security. The deal involves taking over a series of community hospitals. We’re always looking at what we’re doing with our current partners and seeing what else we can provide. portering. administration. Thomas’ Trust and King’s College Hospital. reception. we really made our entrance into this space when we began working with Leicester Trust back in 1997. far more potential. maintenance and engineering. mainly in the East of England. human resources.000 patients – and it’s a sign of new market emerging in health. MD. finance. But our range of services is always expanding – we’re doing pathology services in partnership with Guy’s and St. HCE: What do you see as the potential? VM: We estimate that health systems in the UK are spending internally around £13. providing facility management services: catering. speech and language therapy and specialist children’s services. and our partners are supporting in the deliver of the clinical services.HCE interview Valerie Michie. Analysts reckon Serco has more than doubled its healthcare outsourcing since 2011. cleaning. That market that is expected to double by 2015. we’re also continuing to secure new deals – we just won an integrated facilities management [IFM] contract with East Kent and a £240 million business processes outsourcing [BPO] contract with Anglia Support Partnership. when it claimed a 5% share of a £2 billion market in health support services to the NHS in the UK.5 billion on basic support services which could be outsourced. which is a pretty big deal.

these things can be changeable. The political climate may be supportive to the further involvement of the independent sector. and we are implementing a lot of high-tech solutions. HCE: Speaking of the political environment. even post-reform. managing patient hand-offs between clinicians and services. and if Hinchingbrooke is a leading indicator. and it’s going to help grow this market a lot. where our robots can deliver services. the health system is still going to be very localised: you have to build a coalition of a lot of stakeholders. Serco itself won’t be doing any Circlestyle. ultimately? What would Serco like to end up doing? VM: What we’re looking at right now is all of these acute trusts that are looking to become foundation trusts over the next few years. We’re now moving into higher-level clinical support services – helping to design care pathways and patient flow. This all tracks with what the NHS is doing. It isn’t just industry hype. HCE: What about what’s happening outside of England? Is Serco looking at continental Europe? VM: Not really. This is all very significant. Hinchingbrooke has really changed the conversation. We’re seeing the formation of larger procurement regions. HCE: So what’s the vision for future services. and so on – which the NHS is becoming increasingly willing to outsource.healthcareeuropa. so from now on other trusts can just pick up that document and really speed up the tender process using it – and we were involved in crafting it. and we pride ourselves on our employee engagement – many of our employees transfer to us from the NHS. for instance: we were involved in the design of the hospital. September 2012 HEALTHCARE EUROPA 29 . in much the same way we are for the Suffolk community services – but we are very excited about the possibilities at the moment.. VM: The service delivery is designed to be patientcentric. then all of a sudden the private sector is going to have more opportunities to deliver service. exporting our UK service model to deliver a digitised service solution to the Fiona Stanley Hospital in Perth. all of whom are going to be responding to different political pressures. The UK is our main market. purchasing services for all kinds of trusts. There’s also an increasing realisation in the NHS that we can make the investments in technology and modern design for which they can’t access investment support.com delivering services at cost savings of 20-30% for the NHS. which identified £600 million of savings to be made through outsourcing. and we do it while www. That’s one of our big strengths: we do things that patients really love. The contract that we won with Anglia was a framework agreement. Look at what we’re doing in Forth Valley. but we’re also active in the Asia-Pacific region and the Middle East. But there’s a lot of hope: not only Hinchingbrooke. They’ll be looking for partnerships going forward. We see a lot of potential here. Part of the challenge is that. rather than everyone doing everything separately. which is so rare in the NHS. The hospital features a tunnel network underneath the site. We just won a ground-breaking contract in Australia. but things like the 2010 NHS QUIPP. what is the NHS culture towards outsourcing like at the moment? VM: Obviously. But it’s also quite exciting because a lot is becoming possible. HCE: Wow. “whole hospital” contracts – we’d want to work with clinical partners.HCE interview VM: It’s a front-line service area.

secure is separated into three levels: low. In each country.” explains Deputy Director Rasmus Nerman. Thus far. a nascent private sector is expanding into psychiatric care provision for the continent’s public payors. “They’re offering. rather than a possibility. Sweden and Spain are on one side of a continuum in Europe. in France. bipolar disorder. “Out of the three sectors . In the UK. however. as with DRGs. Medica saw 28% EBITDA in the first half of 2012. are obviously managed in partnership with national ministries of justice. “Cambian is currently the only UK provider working on this. for both political and practical reasons . “It’s a small sector. In the UK.” adds Carlos Rus of Spanish private hospital association FNCP.the state reserves the right to enforcement of the strictest 30 HEALTHCARE EUROPA September 2012 law and order .com . The same is true in the Netherlands and in France.the private sector is the smallest in this area. as well as secure services . payment is determined by length of stay. Talk among UK NHS circles is that payment-byperformance is an inevitability. This is already a reality in the UK and in Germany.HCE feature Psychiatry: Set for Growth Across Europe. “We have become very specialised in this severe cases. rather than through a formula determined by activity levels and patient profiles. those who have been put in care by the legal system.caring for people who are a danger to themselves or others. are they fighting for a shrinking slice of the pie? HCE takes a look at select markets to see how far private operators are making inroads into mental healthcare.” says Nancy Hollendoner of Smith Square Partners. Payors are growing more sceptical of this arrangement. with EBITDA margins having been as high as 35% a few years back. medium and high. In the UK. step-down to assisted living community housing and ambulatory and inpatient clinics. where all standalone psychiatric providers are private. EBITDA margins range from 17-30%. What we also see is that psychiatric providers have made moves towards offering a ‘closed loop’ of care.private. “You have to show the health system that you can provide a lot of added value. public and not-forprofit . Payors are angry about what they see as profiteering. ranging from limited private sector involvement in psychiatric care through to heavy involvement . along with an offering of secure facilities. tariff trims: they are targeting certain time-frames for their inpatients to www.healthcareeuropa. Payors: Scepticism and Waning Patience Psychiatric care has stood outside of the DRG revolution across Europe. psychiatric care is paid for through block contracts . INOM. chronic cases. Chief Medical Officer of provider The Priory. reflecting high profits among providers. rather than condition. says that the NHS is still providing most of the country’s psychiatric care. and is developing in Sweden and the Netherlands.” The story is similar in Sweden for the only truly large provider. What remains to be seen is whether the loop will close even tighter: if primary care and homecare will be brought into the fold in a big way.high-security psychiatric institutions have remained the preserve of the public sector. Chris Thompson.tenders for providing services that pay in lump sums. rather than being referred through the normal health system. “The NHS mostly just turns to the private sector for severe. In Germany. in which providers offer care homes focusing on geropsychiatry. Public payors have been opening up to the idea of private providers picking up some of the slack in mental health systems across Europe. provider Cambian is developing its own performance-based reimbursement system to offer to the NHS.” This is the typical profile of psychiatric providers working for the public payor: specialised services for conditions like schizophrenia. as well as in secure. essentially. But with all major markets still stuck in the economic doldrums.as in the Netherlands. manic depression. Trying to pre-empt the health system.” says Cecilia Malmström of Swedish healthcare services provider association Vardföretagarna. eating disorders and other various severe types of mental illness. These secure services.

the only major provider to be targeting private pay is Schoen Kliniken. “The Ministry of Health is developing a new system to move past the current per diem reimbursement mechanism internally. possibly by as much as 5%.000 beds. “We are paid per patient. they will accept a lower reimbursement rate. The game for the big providers is. This is where the money is.Profitable and Growing Consultant Stephane Pichon says that there are 240 private psychiatric institutions in France. because every case is so different. Public Budgets: The Economy Applies Pressure After this year’s massive 10% budget cut . we are seeking to set a cap on the psychiatric budget’s growth rate. etc.general cutbacks in the public sector are not being met with like-for-like increases in privately-provided capacity. given the particular position that mental health occupies . It is followed by Generale de Sante. FRANCE . where the economic crisis is particularly acute. In Spain.HCE feature step down out of care and into the community.equivalent to €600 million .such as inpatient treatment for eating disorders . unless providers fail to implement patient monitoring and quality reporting procedures. the government is looking to contain further psychiatric budget rises. certain therapies .do not deal with patients paying out of pocket at all. This doesn’t seem to have been much to the benefit of private providers so far. simple: win contracts with the public payor. cost-savings are the rule. If they fail to hit these targets. In that case. Sweden is slightly ahead of the curve in this respect. the country’s largest psychiatric care provider.” In the UK. which equates to 25% of the private market.” Generally.000 private for-profit beds in France. which has around 25 institutes.are being cut back drastically. “They are unfortunately not in contact with providers during this process. and is where the major players are all focusing their attention.” explains Bas Leerink of insurer Menzis. while in www.typically treated as the ‘poor man’ in the health system compared to somatic care .” says a spokesman for Ameos. Looking forward. it was clear that mental health isn’t exempt from the austerity knife. Private Pay: Can It Pick Up the Slack? Private pay cannot pick up the slack. customers paying out of pocket provide at most 20% of the biggest providers’ revenue.” explains Nerman of INOM. while some . reform has been legislated . the largest hospital chain. This is used by the health system to manage reimbursement rates . or whether the idea is even practical for a single company to pursue. “Right now.but this can be difficult in a field in which exact patient diagnoses might only be made after months of observation. The private sector is already fairly well consolidated.as well as more strictly medical neurological cases .in the Dutch psychiatric sector. there are no plans for further cuts.com Germany broad-based cost reduction is the goal. owned by Four Seasons Healthcare .minus the messy details of what it will actually look like. rolling psychiatric care into the free choice regime. it is possible that the insurers will institute a direct cut to reimbursements. according to the FNCP. In Germany. psychiatric care is very complicated. “We simply have to get psychiatric spending under control. which treats less severe psychosomatic cases . but the payors there are aware that they don’t want to rock the boat too much.” The plan is to move to a system based on patient conditions for determining reimbursement rates .such as the Huntercombe Group.” The payment reform has yet to be rolled out. Nursing home group Orpea is the country’s largest player in psychiatry. though there are signs everywhere that their position is improving.following brain trauma. Rival nursing home groups Medica and September 2012 HEALTHCARE EUROPA 31 . of course. for the most part. equal to 23% of the country’s total capacity of 53. In Sweden.anxiety disorders and the such .healthcareeuropa. Still. Director Jean-Claude Marian says that there are 12. In Sweden. the trend is towards more data monitoring and a ‘steady-as-she-goes’ approach to payment reform. Orpea has 3. we must negotiate payments on a patient-by-patient basis. In Germany. The process is likely to be long and fraught in the UK and Germany.000 beds. so it’s not clear whether the NHS will accept it. this is down around 5-10%. “Every psychiatric provider must offer patient reporting data and quality metrics.but. and further expansion of the kind of secondary services that psychiatric providers are supplying there is extremely unlikely. Often. In the UK.

healthcareeuropa. Medica revealed. Then Schleswig-Holstein came up as the first big public psychiatric hospital to go out to tender. that EBITDAR in post-acute and psychiatry came to 28% in the first half of 2012. Of the 240 institutions in the private sector.565 million to Rhoen’s bottom line. Anywhere. None. mainly dealing with chronic psychological morbidities. According to Almeling.300 beds across two hospital sites. while geropsychiatric longterm care through its 10 homes generated €36 million.group EBITDAR came in at 26. It was almost a surprise. “Back in 2000. Private operators generate additional revenue by charging patients a room rate. The government has not been consulting with private providers on the matter. The big players are familiar names: Ameos. The silver lining to low prices. since in order to run specialised psychiatric services. www. Ameos’ arrangement is relatively uncontroversial now. around 150 are independents or in smaller chains. The huge Fachkrankenhaus für Psychiatrie und Neurologie Hildburghausen alone contributes a net €6. It is not hard to see why. Psychiatry is a secondary activity for most players.000 beds that Orpea operates in Paris. The sector is currently awaiting payment reform. Jean-Claude Marian recounts the anecdote of a friend who tried to reserve one of the 1. Ameos’ revenues in its 22 psychiatric clinics came to €206 million. Demand for private-sector beds is extremely high. while public operators receive €300-400 for the same treatment. who has a long history in the psychiatric sector and now heads small regional psychiatric provider Oberberg Kliniken. He told me that there were absolutely no spare beds at all. for instance. It was huge: between 1. taking up relatively little of their total bed capacity. they are gradually being swallowed up by the larger players. Ameos didn’t come into this expecting to become a leading psychiatric provider. the private sector is reimbursed on a much lower tariff than the public sector.” GERMANY . but Rhoen has some enormous psychiatric clinics. Orpea. psychiatry is not a sole focus. In 2011. As a group. making it the company’s most profitable sector . Schoen and Helios.” Things snowballed from there for Ameos: the win led to the company taking over the secure psychiatric hospital that was linked to Schleswig-Holstein.The Accidental Sector “Ameos didn’t really even expect to win the tender for Schleswig-Holstein. Although the spectacle of a private provider running a secure facility caused a big fuss in the country when it first happened. 2011 EBITDA was €50 million on €396 million of sales. a provider needs a licence. there’s not really much money to be made in secure services . and also Rhoen. This is despite the fact that. Barriers to entry for new players are extremely high. Helios runs six psychiatric clinics. The thing is. The final result will look very different from what the Ministry of Health first announces.000 beds. there are no further big sell-offs planned. Other competitors unfortunately do not provide sectoral breakdowns. and it is widely expected that a long period of muddling through will come right after implementation. as with somatic acute care. no one wanted to be in psychiatry. As is happening elsewhere in Europe. to get this licence. with an EBIT margin just shy of 10%.but the acquisition gave Ameos a certain prestige that bolstered its position with the German health authorities. The private sector now accounts for about a third of the care delivered in psychiatric clinics in Germany. as they are known on the continent .200 and 1.HCE feature Korian both hold under 1. is that the state has an interest in sustaining the private sector and expanding it. however. which will move reimbursements closer to a DRGstyle payment schedule. is paid €120-150 per diem for psychiatric patients. “I rang the manager in charge of the division. It is now the largest private-sector psychiatric care provider in Germany. along with smaller facilities.or forensic 32 HEALTHCARE EUROPA September 2012 services. with some claiming that it might not even be legal. Even for Ameos.2%. so it is unclear how any new providers would make inroads into the market. a provider must purchase a public psychiatric clinic.” says Michael Almeling. In fact.com . According to Almeling. the discrepancy is even greater than the 29% discount in acute. obviously. for instance.

the private September 2012 HEALTHCARE EUROPA 33 .budget. along with the up to €200 per-patient co-pays that the state instituted starting in 2012. which will soon be providing psychiatric homecare in partnership with psychiatric provider MoleMann will be competing for the same pot of money as the current psychiatric establishment. According to Vardföretagarna. providers still have yet to achieve this. The old regional organisations remain .36 billion).these old regional groups will come under further pressure. patient self-reporting and treatment progress monitoring. director of the GGZ.” If demand for any one psychiatric area in the country suddenly shoots up in a sustained way that could not reasonably be expected. and as such have developed a new performance monitoring system based on cost data. of which Parnassia Group has been the most successful. though it is only in the previous decade that major providers began to emerge. Further budget cuts may come down the line . a new wave of independents have come rushing in. These are for-profit. according to insurers.5 billion mental health services budget defines the extent of the mental health market.Cuts and Reform In the Netherlands.the spin-off of enormously successful homecare provider Buurtzorg. a patient can come in for evaluation. however. the association representing those providers. then insurers need to fund psychiatric care out of increased surplus premiums. The 20% goal must be reached by the end of this year.” explains Paul van Rooij. however.GGZ Leiden.if providers do not comply with demands from insurers to improve data reporting. but cannot be private equity-owned. Unsurprisingly. This will mean that BuurtzorgT . inpatient monitoring. the free choice segment of the market is very small. SWEDEN . with highly-integrated service offerings running the gamut from inpatient to homecare.healthcareeuropa. Currently. Policy in the country has pushed towards the creation of “closed-loop” organisations: that is. such as community-based treatment. That establishment is formed of more than 80 providers around the country. appropriating funds and then instituting caps to pull spending back down. with €564. says that they’ve been hit hard by the country’s recent budget cuts. at time of writing. the private sector has been around in some form since the 1950s. This all comes under the ‘cure’ . and has only 368 employees. with the homecare market developing towards the point of new independents entering psychiatric care in a big way such as with BuurtzorgT . the largest provider in this segment outside of INOM is PRIMA. A position which we are told is unlikely to change fast. However.now that the market has been liberalised. then the government steps in to deal with the situation.000 employees. It used to be that a single provider exclusively covered a single region of the country . This era of austerity follows ten years in which the CAGR for the sector was over 9%. The GGZ.alone accounts for 10% of the current psychiatric market. INOM estimates that psychiatric spending equaled around SEK 20 billion (€2. Revenue among these groups ranges from €100 to €150 million. The Dutch sector is largely based around hospitals. “The government sets a budget cap for psychiatric care. etc. The 2012 budget cut represents the first serious blow to a sector that has seen good times for a long while now. GGZ Eindhoven. .The Start of Something Special In Sweden. step-down to sheltered housing in the community and then proceed to regular outpatient treatments while being treated by www. The current plan.and are indeed very large. the association representing private-sector healthcare services providers. they are not eager to do that. which operates primarily in Stockholm. in which municipalities allow patients to choose between both public and private sector providers for select services.com the same provider at all stages. has been a boon to private providers in other areas. to avoid further cuts. The insurers have banded together and demanded that the psychiatric sector improve accountability. is to merge all areas of psychiatric into the cure budget.as much as a 5% cut to tariffs . “If that cap falls short of what is needed.3 million in revenue in 2011 and over 8. Sweden’s free choice regime. comes under the ‘care’ budget. Now it looks like the sector might have lost as many as 9. Parnassia Group comprising ten brand names in the sector .or healthcare . The target was to have 20% of patients’ data fed into this system by the end of 2011. while social care. the €5.HCE feature NETHERLANDS . All standalone psychiatric clinics in the country are in the independent sector.000 jobs by the end of this year. both in their inpatient beds and their outpatient clinics. These institutions provide over 90% of psychiatric treatment in the country.

very much public sector private hospitals are mostly highly-specialised. even this might overstate the extent of the private sector’s reach right now. PRIMA. The Huntercombe Group www.comorbidities in the population.more and more . It is still mostly charities and notfor-profits. Joan Barrubés of Antares Consulting confirms: “The ambulatory sector is very heavily based in the independent sector. Perhaps the most hopeful sign in Sweden for the private sector is that the psychiatric budget is increasing while cultural attitudes about mental healthcare are shifting rapidly.Private Equity Looks on in Interest Private providers are in a curious position in Spain.in fact. there are some incredibly well-respected small operators . Partnerships in Care. the largest of which make a turnover of around SEK 20 million (€2. looking to make a move.INOM. but the private sector is involved as well. It’s a better atmosphere in general for those with mental health needs.” 34 HEALTHCARE EUROPA September 2012 SPAIN .36 million). these do not exist. rehabilitation and psychiatric care.com .7 million). though the market is apparently seeing rapid consolidation. rather than public clinics run by private management . That’s not to say that they’re bad .6 million). “It used to be. over 6. The ‘full responsibility’ segment . Nerman of INOM explains: “The smallest providers are having trouble keeping up with the increasing complexity of the work.” the FNCP told us.. That leaves with the private sector with an overall 24% share of the market by capacity. or if you were young and had trouble understanding and focusing on the world.500 in not-for-profit institutions and just over 3. According to Barrubés. The Priory Group. along with the increasing complexity of morbidities and . It is involved in the free choice segment (paid for by municipalities).” As in the Netherlands. “Outside of low-margin ambulatory work.” These private hospitals often focus on the cross-over point between neurosurgery.” UNITED KINGDOM . through organisations affiliated with the catholic church. It will be interesting to see how the interface between psychiatric care and homecare providers develops. According to the register of hospitals. There are five or so big providers in Sweden . Below these providers are hundreds of tiny companies. there are currently over 3.4 million). According to those we’ve spoken to. Now things have changed: people are more willing to listen to you. INOM has a 15% share of the full responsibility segment (SEK 750 million. or €88. it was just considered tough luck.The Rise of the Big Players The UK is seeing the development of sizeable operators in the psychiatric care sector. Carema. fragmented as the opportunities are for private operators.” announces Ignacio Riesgo of PwC. “We have just begun a consultancy partnership with a private operator. and is the largest private-sector psychiatric care provider in Sweden.HCE feature sector share of which was SEK 7 billion (€825.no. of providing a full patient pathway from diagnosis to treatment to step-down and community care. A plurality of the country’s psychiatric capacity is provided by the not-for-profit sector. providers are trending towards a ‘closed loop’. But when you speak of ‘chains’ of providers .it’s just that with the burden of increased data reporting to the payor. It has been held back by a lack of development in the market and the lack of an opening consolidation doesn’t necessarily make sense across the sector right now.is SEK 5 billion (€589. The inpatient sector is very. capital-intensive psychiatric hospitals right now. Capio and Praktikertjänst.healthcareeuropa.000 in for-profit institutions. “that if you were old and found yourself depressed. they can’t keep up with providers like us who have the advantage of scale. to help you out.” says Nerman. “We’re working now with Istitut Guttmann. specialist referrals from hospitals (paid for by municipalities and county councils) and secure services (paid for by the prisons service). clinics owned and operated by a private provider. it’s really the case that the private sector is used mostly for highly-specialised.100 places in public institutions.e. you’re just that way. private equity has been keeping a keen eye on the sector. one of the most prestigious neurorehabilitative institutions in the country.i.

if a monopoly investigation decides to break them up. Increased capacity in the private sector is reportedly being offset by reduced occupancy rates.6 million (-7%).2 20.overbuilt capacity in the medium-secure segment. Hollendoner adds that there is a caveat: “The public sector is somewhat concerned that a new payment mechanism would open it up to ‘cost challenges’ from providers . The 2011 private share of the country’s roughly £4 billion addressable market was around 30%.6 15 17.9 million (29. secure. given its presence across sub-sectors funded by both NHS and local authority spending. private sector penetration ranges from 3050% across specialised sub-sectors (acute. they will still be large enough to be financially viable.however. with 2011 revenue of £455. but the fact that psychiatric care is purchased through block contracts means that there is little accountability for providers. especially. It is also the market leader in the special educational needs sector. rather than NHS.1 30.6 PARTNERSHIPS IN CARE 172.though its exact market share is difficult to determine.9 CYGNET HEALTHCARE 78.4 million and EBITDA of £134.2 billion. Part of this is because of cutbacks in the secure sector. paid for by the NHS. after several years of growth. which makes it the third-largest in that sector.com September 2012 HEALTHCARE EUROPA 35 . Andrew’s Healthcare.8 26. It also includes a lot of care home activity that would not be considered secondary. etc. the country’s largest care home operator) and Cygnet Healthcare are the top operators here. psychiatric care per se. while community services (emergency response. social worker support) are provided almost entirely by the NHS and not-for profit organisations. which has . Priory also dominates other sectors.” Right now.8 52.we have been told . The Priory Group. The sub-sectors breaks down like this. Figure given is EBITDARM. providing 50% of Psychiatry .2 HUNTERCOMBE GROUP 83. Priory had seen £465. though obviously this falls outside of strictlydefined healthcare services.3 million in revenue in 2010 (2%) and Partnerships in Care £186.9 N/A N/A the UK’s inpatient adolescent psychiatric care beds and 30% of inpatient eating disorder care beds. particularly after the 2011 acquisition of learning disability-focused Craegmoor. Priory is the largest in the market.6 ST ANDREWS HEALTHCARE 159.9 29. Secure services alone amount to £1 billion of NHS spending. This has poisoned the well somewhat between the payor and these organisations. and both sides are now edging around the issue of reform. Hollendoner of Smith Square Partners explains: “Now that reform has passed.legal challenges claiming systemic underpayment. When geropsychiatric care homes are included.and low-secure hospitals.run by the Ministry of Justice Priory runs four big medium. Cygnet Healthcare is part-owned by Barchester Healthcare. this crosses over into social care. In the secure space . In the inpatient non-secure space. Mental Health Trusts are actually taking back a lot of the medium-secure work that went out to private providers now.). or £1.6%) . Both sides will be very cautious going forward. the potential market balloons to £14.UK ORGANISATION THE PRIORY GROUP REVENUE £M EBITDA £M EBITDA AS % OF REVENUE 455 134. HCE NOTES: St Andrews is a not-for-profit provider.” This will be particularly damaging to Partnerships in Care. Huntercombe Group is owned by Four Seasons Health Care. www. existing trusts are looking to gather as many assets as possible so that.HCE feature (a subsidiary of Four Seasons Health Care.5 billion . This represents a fall in revenue and margins across the board from 2010. behind Partnerships in Care and non-profit St. who are earning up to 30% EBITDA. Not only that. spending. is the largest psychiatric care provider in the UK.healthcareeuropa.

with tens of thousands of users across the UK and the USA. So. carers . AlUbaydli says: “It is aimed at the 20% of that population who are chronically ill. white women. especially when several different groups of medical staff are involved in their care. This means that it can connect data collected at NHS hospitals and primary care clinics. the less the doctors know.” He also says the giants did not appreciate that it is not data but workflow and action points that are key. He claims a take-up of over 90% for his system. “It allows children. The company was founded in 2008 and grew up in a few specialised UK hospitals. Meanwhile.HCE final thought A Facebook for patients: the Holy Grail We talk to Dr Mohammad AlUbaydli. A patient on a course of treatment would let the drug company have access to their data. chronic condition and realised that. be rescinded whenever the patient wants. He says: “The more specialised they are.” www. Microsoft and Google mistakenly relied on a ‘consumer-upwards’ approach. The system is compliant with both UK and US data protection laws. Where workflow was offered.to view the patient’s records remotely. for patients like him. of course.” The system developed by Patients Know Best enables everyone doctors. That could.including Novartis as well as with a chain of ten US hospitals. “The drug company will be paid for reductions in blood pressure. it was far too expensive: Microsoft wanted hospitals to pay $1 million a pop. So why have telehealth and chronic disease management programmes failed? According to Al-Ubaydl says that.” The aim is to provide an international platform for medical records. patient. Patients get to decide who can access their data. including Great Ormond Street. The system appears to have achieved lift-off. Al-Ubaydli is now looking for capital to make the leap abroad. but the contract allows everyone to use it. He also says that the system allows drug companies to offer a payment-by-results service.healthcareeuropa. The reality was that the doctor would simply refuse to upload the data. In Europe. how has he succeeded where Google. Al-Ubaydli claims that over 90% of the patients offer the service take it up. the only people who use them are wealthy.6 million.” So how has he succeeded where the NHS. A county in the UK is about to sign a deal making Patients Know Best’s system available to its population of 1. it really is the case that the patient does know best. a charity is about to launch a €5 million research project across five countries into Alkaptonuria using Patients Know Best as a platform. Patients Know Best is preparing for 2013. “The idea was that the enthusiastic patient would go to September 2012 the doctor and get him on board. It also allows doctors and patients to communicate remotely and develop workflows and treatment 36 HEALTHCARE EUROPA regimes online. To top it all off. And potential partners simply did not trust Google or Microsoft with data. telehealth applications are lucky to achieve a 5% take-up from patients that are offered them. “In the USA.” he quips. the founder of Patients Know Best. normally. the level of encryption means that Al-Ubaydli can’t even tell us how many patients are registered. to run the software on behalf of their parents. Microsoft and Google failed? Al-Ubaydli says the NHS doesn’t know how to write software. As such. when it will roll out its service to a county of 1. Al-Ubaydli himself has a rare. a cloud-based system that allows patients to aggregate and share their medical data with medics and others. Microsoft and the NHS have failed? And how will this enable the development of new business models? Patients Know Best developed out of the idea that medical record systems only really work when the patient is given control.com . for instance. Al-Ubaydli is now signing contracts with four drugs companies .6m people in the UK. What makes the system unique is that the company is the only provider with full access to N3. one that can also run on mobile phones and provide a market for hundreds of independent app developers. the NHS’s secure national network.