February 2015 Hygeia fails to find a buyer Do PPPs work in the

Transcription

February 2015
Hygeia fails to find a buyer
NEWS
Middle East
Gulf buys European
4
Lesson from Dubai
5
NMC tourist plans
Asia
5
Insurance in India
7
Thai hospital investing big
9
Fosun enters China
Sub-Saharan Africa
Roaming saleswomen
PE looking in Ethiopia
8
12
13
Enormous potenital - KPMG 14
Latin America
Mexican sugar clinics
15
Rest of the World
16
HCN BLOGS
23
INTERVIEWS
Ian Clark, IMG
Aschkan Abdul-Malek,
AlemHealth
James Cercone,
21
25
Sanigest Internacional
34
Peek Vision
44
Andrew Bastawrous,
FEATURES
Insurance,
vertical integration
27
South Africa - troubled?
37
BCG ‘alternatives’
33
Hygeia, the big Nigerian hospital and HMO group has failed to find a buyer
after a sales process lasting at least six months. We hear that all three of the
big South African hospital groups turned the company down.
The news is bad news for private healthcare in Sub-Saharan Africa. This is
the largest healthcare services asset in the region, outside of South Africa.
Hygeia runs three hospitals and an outpatient clinic network. Its insurance
arm covers 200,000 people working for corporates and Hygeia is also
building a policy for poorer Nigerians. It is supported by the IFC and
investors include the Investment Fund for Africa.
Our Analysis: Conditions for the private healthcare services sector couldn’t be
much better than they are in Sub-Saharan Africa. A decade of high GDP
growth rates has left governments in countries like Ghana and Nigeria
planning big increases in insurance coverage.
Unlike in much of Europe and Latin America, governments are also willing to
work with private sector operators who are far more efficient than the poorly
funded and corrupt public sector.
In any case, in many of these countries out of pocket payments account for
80% or more of healthcare services expenditure.
The risks are obvious, starting with poor governance, a lack of staff and
corruption. But the opportunities for the brave are massive.
Do PPPs work in the Developing
World?
The failure rate is high for big, operator-led PPPs in the Developing World. Big
PPP projects where private players win a long-term contract to run a large
public hospital or deliver primary and secondary care to hundreds of thousands
for a per capita price often fail, but hundreds of less formal, more ad hoc
projects are working well.
Panama, Mexico, and Chile have all recently seen big PPP projects shelved or
cancelled. Consultant James Cercone at consultancy Sanigest said: “Panama
stopped several PPPs. In Chile they were going to run 15 hospitals and the
previous government stopped the process.
Mexico closed seven PPPs under the last administration, several had hit
overwhelming demand which was good for the government but less Page 2
www.healthcarebusinessinternational.com
HCN news
Do PPPs work in the Developing World? - cont.
good for the operators!”
A similar pattern of overwhelming
demand has hit Brazil’s first large
scale PPP hospital. The operator told
HCN that demand was a third higher
than expected.
But that doesn’t mean that less
formal PPPs don’t work.
Dr Shetty at Indian hospital chain
Narayana, the man often known as
the Henry Ford of heart surgery, says
that part of his ambitious expansion
plan is based on regions and cities
handing over failing hospitals to
Narayana to run.
Cercone says that less formal
partnering arrangements often work
better.
“In India you might find a
diagnostics centre which has been
given to a private provider on the
basis that in exchange for working
until 3pm for the public payor they
can then do work for the middle
classes for money. Land prices in
some Indian cities are incredibly high
so the city might give a hospital
group a plot worth $20m in exchange
for free services.”
He says that in Kazakhstan in
exchange for space in a hospital lab
facility, a private operator centralized
+ HEALTHCARE
BUSINESS INTERNATIONAL
lab services for 18 local primary
centres, providing better service at a
reduced price with delivery times cut
from three days to 12 hours and a
third cheaper.
The IFC continues to soldier on with
formal, transaction-led PPPs. The
IFC’s Laurien Field denies that
running PPPs in much of Africa is
dangerous
given
governance
standards.
“It is less risky than current
procurement processes. At least with
PPPs when the bids are opened we
are in the room.”
Field says the secret is to ensure that
the contract fully reflects the roles
and risks of each party.
Our Analysis: Large scale PPPs,
which are on the radar politically,
often lead to conflict between Left
and Right. The danger is that in
democracies they become hate
objects for the Left.
That has happened in Europe in
Spain and appears to be also
happening in Latin America.
And it occurs irrespective of whether
operator-led PPPs deliver good
service.
In fact, we know the PPP model
Covering private healthcare, care + outsourcing internationally
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works. It has been proven in Spain
over the past 18 years.
There the PPP operators can point to
a high quality service delivered at a
lower cost than the publicly owned
hospitals.
Cercone claims that a PPP he ran in
the early 2000s in Costa Rica
delivered primary, prenatal and lab
tests for 170,000 people through 15
clinics at $39 per capita compared to
$54 per capita through the public
sector.
Clinics were open four hours later
and he says that the operator still
made a 15% profit.
Cercone says a major factor in PPP
failure is poorly drafted contracts. He
has come across contracts for
emergency services which don’t
specify mileage cost or even cost per
trip.
And many big hospital contracts
make no attempt to measure the
patients’ experiences.
PPPs may work better in more
despotic countries, where there is
little or no political debate.
It will be interesting to see whether
Algeria’s eight large hospital
operator-led PPPs will work, for
instance.
The IFC has an operator led PPP in
Lesotho and scars on its back from a
similar project in Nigeria which is
behind schedule but is now being
built.
Less formal arrangements struck at
regional or city level, often work out
better.
The Developing World is full of such
examples.
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2
+ February 2015
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HCN news
Middle East
Gulf hospital buys
European expertise
UAE hospital group NMC Health has
bought Eugin, the Spanish group
which is Europe’s largest fertility
clinic, with the aim of exporting its
know how to build a fertility business
in the Middle East. The move
follows Chinese conglomerate
Fosun’s acquisition of Espirito Santo
Saude, the second largest Portuguese
hospital group.
Including debt, NMC is buying 86%
of Eugin at a price which values it at
€143m. Eugin had 2014 sales of
€34m with an EBITDA of €14m, a
margin of 41%. Seller, private equity
house ProA Capital, has more or less
doubled its money on Eugin in five
years say Spanish sources.
Analyst Charles Weston at Numis
Securities says the idea is to take the
Eugin brand and protocols back to the
Middle East. “NMC thinks in terms
of brands and during an analyst
meeting said that it liked Eugin
because, unlike many fertility clinics,
the brand is not based around an
individual medical practitioner.” He
didn’t think the price was particularly
high. “It has grown fast and NMC is
only paying 10 times EBITDA.”
Newspaper reports suggest that
Fosun, the big Chinese conglomerate,
and private equity house Nordic
Capital were underbidders.
NMC reckons that Eugin has 10% of
donor IVF treatment market in
Europe. Its formula is already geared
to mass medical tourism – over 95%
of its patients are referred from
outside Spain, mainly from France
(55%) and Italy (17%).
NMC is surfing on a massive wave of
demand created by the development
of statutory insurance in the Gulf
generally and NMC reckons that
there is a big lack of provision.
4
+ February 2015
Weston says the move follows
NMC’s opening of a hospital
dedicated to women’s health: "NMC
is targeting healthcare tourism in a
big way."
Meanwhile, NMC saw sales rise 17%
to $644m with EBITDA ahead 10.2%
at $102.5m. Sales are split half and
half between the hospital business
and medtech distribution. NMC is
expanding hospital provision fast and
is also building an outpatient
network. Weston says results were
ahead of expectations and that the
shares are now trading at 14 times
prospective EBITDA (excluding
Eugin). He thinks they have further
to go. “They only rose 2.5%, but this
acquisition should rise EBITDA by
over 10%.”
NMC is raising $825m with over half
going to fund its international
expansion.
The London-listed group has
reportedly been given commitments
from banks for the war chest,
including a $475m fund that will go
towards acquisitions. The remaining
$350m will be spent on refinancing
NMC’s debt.
Founded by Indian businessman BR
Shetty in 1973, NMC claims it is the
biggest private healthcare player in
the Middle East. Since floating in
London in 2012, NMC has built up its
UAE presence with the 100-bed
Brightpoint Royal Women’s Hospital
in Abu Dhabi (opened July 2014) and
a 60-bed hospital in Dubai
Investment Park. A new 250-bed
hospital in Khalifa City is expected to
be open in the first half on 2015.
“NMC will be looking at the rest of
the GCC. It’s fairly obvious that
they’ll look at Saudi Arabia, but I
expect they’ll also look at Qatar as
they are reforming their healthcare
system at the moment”, Weston says.
But will the region’s turmoil have any
impact on these expansion plans?
Weston doesn’t think so.
“The Arab Spring was interesting,
one of the big issues was that citizens
wanted better healthcare, so it’s seen
as an important area of investment,
both politically and just for the
general welfare of the population.”
NMC’s expansion and debt plans
mirror a general trend amongst
healthcare groups in the region.
“NMC is just one of a number of
companies looking to build upon the
UAE’s strong healthcare market. Al
Noor, which is also listed in London,
is also looking to expand, as is Aster
DM Healthcare, which is aiming to
float in India”.
Aster DM Healthcare, currently
gearing up to float in India, is due to
expand its number of clinics and
pharmacies across India and the
Middle East. Aster DM has around
230 facilities, including hospitals,
clinics and pharmacies. According to
its website, it aims to increase this
number to 300 by 2017.
“Lots of companies want to deploy
capital into the UAE and GCC
healthcare markets because of their
economic
growth,
increasing
healthcare demands and political
support for private hospital
providers”, says Weston.
Alpen Capital research group expect
the Middle East’s healthcare market
to nearly double to $69.4bn by 2018
from 2013’s estimated $39.4bn. This
growth is fuelled by the roll out of
universal health insurance, growing
populations and an increase in the
number of lifestyle and chronic
diseases.
Our Analysis: This is the first time a
Developing World group has bought
a European centre of excellence with
the aim of then taking the brand and
knowledge back its home region.
So it is a fascinating move with
broader implications. There are
plenty of top-notch European brands
in dentistry and cosmetic surgery
which have already demonstrated that
HCN news
they can expand internationally. And
why shouldn’t a niche specialist in
cardio or oncology be moved in the
same way?
The idea of a hospital group from a
region adding a European or US
brand and expertise makes much
more sense than the European or
American operator expanding into
markets they do not know. Apart from
anything else groups like NMC, even
if undervalued, trade at far higher
multiples than their first world
cousins!
Despite regional turmoil, GCC
healthcare is going from strength to
strength as more companies invest in
the region. There’s no reason the fight
against ISIS should have any bearing
on the expansion of groups like
NMC.
NMC Healthcare strategy
to attract tourists and
talent
The UAE’s largest private healthcare
group,
London-listed
NMC
Healthcare, is developing a series of
ambulatory centres for minimally
invasive surgery. These are part of
NMC’s strategy to attract both
medical tourists and top medical
talent to the region. We speak to CEO
and founder Dr Binay Shetty to find
out more.
NMC’s centres for advanced and
minimally invasive surgeries will act
as outpatient or surgical day centres
in 8 of its 12 healthcare facilities.
Shetty suggests that these centres will
serve patients with elective, nonemergency surgery with short
recovery times and the added
advantage of freeing up beds.
The Gulf region has an average of 21
beds available per 10,000 people,
underdeveloped in comparison with
countries such as Germany or France
with 82 and 66 respectively. NMC
estimates its hospital bed capacity to
grow from 310 in 2013 to 720 by the
end of 2015. With an estimated
population growth rate in the UAE of
3.1% p.a., more than double the
world average of 1.2%, healthcare
demand is rising quickly.
Shetty says these centres will also
increase the number of patients they
can treat, estimating that in total the
eight centres will perform roughly
150 procedures a day. NMC’s
patients are comprised of 10% local
Emiratis and 90% expatriates, 40% of
whom Shetty says come from the
Indian sup-continent.
He says these surgical centres are part
of NMC’s strategy to develop the
niche areas of care and create centres
of excellence, investing heavily in the
latest medical technology and
procedures using their existing
doctors and surgeons. Alongside
minimally invasive-surgery, NMC
has these centres in orthopaedics,
ophthalmology, cardiology and
urology and are planning more.
The UAE spent $2bn in 2013 sending
Emirati nationals abroad for medical
care, the ambition of both the
government and private sector is to
curb that spending and treat patients
in-country. With medical tourism
high on the government’s agenda,
these centres are a pre-emptive move
to handle increased demand says
Shetty.
Shetty states that it is NMC’s longterm plan to attract medical tourists
from Africa. He says “Passenger jets
full of surgical patients fly right over
the UAE to get treatment in India. We
cannot compete on prices with India,
as medical costs are about a fifth of
the UAE, but we want to compete on
quality, specialist treatment and
luxury accommodation.” In the shortterm, he says that medical tourists
come from the Middle East, Russia
and south-eastern Europe.
A particular difficulty faced by Gulf
healthcare providers is the ability to
attract
and
retain
doctors.
Approximately 99% of doctors in the
region are expatriates with the
majority coming from India.
Physician density in the Gulf is less
than half that of Europe at 1.5 doctors
per 1,000. Shetty states, “We want to
use these centres to help attract and
retain doctors. Doctors want to be
able to continue their research and to
use the latest surgical techniques and
technology. Salary isn’t enough to
convince doctors to stay, we need to
build in the added benefits”.
NMC is listed on the London Stock
Exchange its financial results are due
out in late February. Its 2014 Q3
results saw healthcare revenue
increase 18% from 2013 to $81.1
million.
Lessons in Mandatory
Health Insurance from
Abu Dhabi
The governments of the Gulf
Cooperation Council (GCC) are
shedding their welfare-state approach
to healthcare funding and moving
towards a market-driven approach.
We investigate the impact.
MHI was introduced to Abu Dhabi in
2006 requiring companies to provide
health insurance for their expatriate
workers. Expatriate numbers are high
in the GCC, and comprise
approximately 88% of the UAE’s 9.2
million population.
A consultant who has worked with
Abu Dhabi’s National Health
Insurance Company - Daman says:
“Access has definitely improved
since the introduction of mandatory
health insurance, but quality is still
not well defined and there has been
an increase in the number of
potentially unnecessary tests being
performed”. He suggests that the
latter can be controlled, noting that
Qatar has introduced bundled
payments for ambulatory services
and DRGs in outpatient care to
remove incentives attached to typical
fee-for-service systems.
February 2015
+
5
HCN news
Daman, which is jointly owned by
insurance group Munich Re, is the
largest payer in Abu Dhabi and the
exclusive insurance provider for the
Abu Dhabi government’s Basic
Insurance product, which serves
around 1.3 million low-wage
expatriate labourers.
Sources agree that the reputation of
Abu Dhabi’s public hospitals has
improved since the introduction of
MHI. In October 2014, the National
reported that Abu Dhabi’s biggest
public hospital Sheikh Khalifa
Medical City introduced a new policy
in which they only treated UAE
nationals. It is possible that other
public hospitals may follow suit.
Our source says that Daman has
begun to develop a system to measure
and reward providers for the quality
of their care. “A legacy system exists
currently, in which reimbursement is
not
objectively
based
on
performance. This is something we
are attempting to change over time
with
our
Evidence-based
reimbursement Programme,” he said.
Quality will be measured through
clinical outcomes, financial measures
(such as efficiency or time and
resource use) and incentivised by
scoring structural factors such as
accreditations and the certifications
of doctors.
The Dubai Health Authority (DHA),
who began to roll out MHI in 2013,
has taken a more hands-off approach.
“They are explicitly not setting up a
national health insurer; several
insurers (including Daman) compete
to sell the basic health plan for low
wage employees there,” says a
source.
Dubai froze prices prior to the
introduction of MHI and DHA say
that they will look at introducing
inpatient DRGs in a couple of years
when they have collected enough
data to accurately set reimbursement
rates.
Qatar introduced MHI in 2013 in a
6
+ February 2015
phased approach in a phased
approach and they have set up a
National Health insurance Company
to oversee the programme. A source
in the country told us that there is
concern that as the scheme continues
to be phased in, private insurers will
be pushed out of the market by
Qatar’s national health insurer.
Saudi hospital group may
sell 30% stake
Dr. Soliman Fakeeh Hospital
(DSFH), the owner of one of Saudi
Arabia’s largest private hospitals may
sell a 30% stake through an initial
public offering (IPO).
Mazen Fakeeh, head of the Saudi
Arabia-based group, said it would
probably go public in the next three
years, a decision reportedly fuelled
by the kingdom’s plans to open its
bourse to foreign investor later this
year.
“We’re
applying
corporate
governance standards and we are
ready to go for listing whenever we
feel the market conditions are
appropriate,” Fakeeh was reported
saying.
DSFH, based in Jeddah, was founded
in 1978 and has a total bed capacity
of 600, a high number for the Middle
East. The hospital also set up a
College of Nursing in 2003.
DSFH is planning to move into Dubai
and to build a AED1 billion ($272
million) 300-bed smart hospital and a
research-intensified university in
Silicon Oasis, a free-zone in Dubai. It
will be called the Fakeeh Academic
Medical Center, and will be the
group’s first project outside Saudi
Arabia.
Fakeeh Medical University, which
will be built alongside the hospital,
will offer instructions in fields such
as medicine, nursing, laboratory
sciences, radiology, physiotherapy,
dentistry, clinical pharmacy and
health policy and management.
It began construction on the project in
December 2014 and aims to have it
fully completed in 2019.
The Fakeeh Academic Medical
Center will be 40% financed by Dr.
Soliman Fakeeh Hospital and 30%
using private bank loans. The last
30% will be offered as shares for
investors through private placement,
which Ernst & Young has been hired
to oversee.
Saudi Arabia’s stock market is one of
the largest in the Middle East and is
rumoured to open to direct foreign
investment in April 2015. An
estimated $40bn of foreign investor
money is expected to be raised by
2017.
The Kingdom’s bourse could also be
labelled an emerging market index
compiler MSCI, Bloomberg reported.
Dubai plans to attract 500,000
medical tourists a year and boost its
economy by up to Dh2.6 billion
($708 million) in the next five years.
Saudi Arabia’s three biggest privately
owned hospital groups are Dr.
Sulaiman Al Habib, the Elaj Group
and Magrabi Hospitals & Centers.
Dr. Sulaiman Al Habib set up the Al
Habib Medical Group (HMG) in
Riyadh in 1995, and it is now one of
the largest private providers of
comprehensive healthcare services
across the Middle East with 1,425
beds.
Established in 1993, Elaj Group has
an integrated healthcare delivery
network. Through its group of
companies, Elaj operates various
medical centres in Egypt, Qatar, the
UAE, and the KSA. The group has 10
medical centres in Saudi Arabia,
three in Egypt, two in the UAE, and
one in Qatar. Magrabi Hospitals &
centres (Magrabi) is a private
company that owns and operates
specialised hospitals and clinics
across the Middles East and Africa.
HCN news
The company is the largest subspecialised medical care network in
the Middle East and Africa, having
expanded by branching out into ENT
and dental clinics.
Israeli companies looking
abroad for big business
Israeli private operators often look
abroad for business opportunities,
particularly in medical tourism and
ehealth. We speak to Barak Singer
and Sivan Sadan, co-founders at Or
Capital Healthcare Partners, a
boutique Israeli investment firm
specialising in healthcare.
“Israel itself is a very small market.
Companies tend to be very
innovative, but look abroad
according to a dual logic: financial,
for venture capital and economic, for
larger markets.”
The United States remains the most
attractive country for Israeli
companies to expand into, but China
and Eastern Europe also prove
popular. The reverse is also true, with
Jinpeng Group announcing its
acquisition of Natali Healthcare
Solutions, the largest private
healthcare and homecare service
provider in Israel, for €88m in March
2014.
The main strengths of the Israeli
market can be found in the high
quality of care of its medical
institutions and its advanced
technological innovations. In 2013,
Bloomberg ranked Israel’s healthcare
system fourth in the world in terms of
efficiency.
Present in Europe, private operator
iMER describes itself as a global
medical service provider. It stands for
‘International Medical Evaluation
and Referral’, and provides
diagnostics through telemedicine and
actual evacuation to top medical
institutions. “iMER raised €6m
capital through private equity fund
Viola. It caters for high-end medical
tourism from South Eastern Europe
in particular”.
Digital health is a leading sector, with
Israeli companies innovating toward
advanced monitoring technologies.
EarlySense, a company offering
monitoring devices for heart and
respiratory rates, has just secured
€18m financing, including €9m from
Samsung Ventures. EarlySense
monitoring system can be found in
the homecare sector, as well as
hospitals and rehabilitation clinics in
Europe, Asia, and Australia.
In January 2015, LabStyles
Innovations signed a partnership
agreement with Maccabi Healthcare,
Israel’s largest Health Maintenance
Organisation, to implement a
telehealth
strategy.
LabStyles
developed ‘Dario’, a cloud-based
smart meter for diabetics to measure
their glucose level. In 2014, it
launched in the Netherlands, the UK,
Australia, and New Zealand after
receiving reimbursement statuses.
Asia
Will National Health
Insurance boost the
Indian market?
In just six years India has enrolled
110m people on its revolutionary
national health insurance scheme.
RSBY (Rashtriya Swasthya Bima
Yojana) grants $550 worth of care to
a family of five each year. The private
sector is involved in both service
delivery and insurance opening up a
huge market.
Only the poor who work in the
informal sector are eligible for RSBY
- approximately 300m Indians in
total. Not all informal workers will be
poor enough to join, but including
their families it could still reach
300m. Most were previously locked
out of healthcare or risked
bankruptcy every time they got sick.
Healthcare in India is characterised
by low insurance penetration and
diabolical public facilities. A poorly
regulated private sector fills the
vacuum and around 80% of
expenditure is out-of-pocket. But
poor workers in the informal sector
are vulnerable to unexpected bills and
long periods out of work. Even with
prices at a fraction of the US, 25% of
people who get hospitalised are
pushed below the poverty line.
RSBY has several novel features that
combat these challenges. A biometric
card is used to prove eligibility, store
data and pay fees. This allows
migrant workers to access care with a
provider of their choice, public or
private, anywhere in India –
excluding Tamil Nadu, which has not
yet joined the scheme.
India's insurers operate at a state
level. Each year they are forced to
compete for tenders and are
incentivised to sign up new clients by
a small per household premium. The
enrolment fee for individuals is 30
INR ($0.5), but the real premium is
closer to 500-600 INR ($8-10),
jointly paid by the national and state
governments.
The scheme has its critics and it still
struggles with India’s more
widespread difficulties in monitoring
and evaluation. The patchy eligibility
data used for targeting was collected
as long ago as 2002 as part of a BPL
(Below Poverty Line) census.
A deficit in quality of care is also yet
to be resolved. RSBY predominantly
covers inpatient secondary care,
which encourages unnecessary
surgical intervention at the expense
of more efficient preventive
medicine. But the platform is now
expanding into outpatient care, with
pilots in Gujarat, Odisha, Andhra
Pradesh and Punjab. Allowing patient
choice will hopefully also spur
competition between the private and
public sectors and improve quality
over the long run.
February 2015
+
7
HCN news
Our Analysis: RSBY is an exciting
development in a huge growth
market. Covering 300m Indians to
the tune of $110 per annum would
bring $33bn of stable demand to the
healthcare sector each year. Is this an
opportunity for the larger groups?
Primary care is not currently a viable
market for them, but secondary care
could be more of an opportunity.
Particularly for innovative, budget
providers like Narayana.
Fosun to build tertiary
hospital in eastern China
The pharmaceutical arm of Chinese
conglomerate Fosun International has
entered an agreement with the
second-largest public hospital in the
northeast city of Qiqihar for the
construction of a new facility.
Fosun Pharma and First Hospital of
Qiqihar City are entering a joint
venture for a ten-year term to build a
tertiary care hospital. Fosun will own
53% equity through financial
support, while First Hospital of
Qiqihar will control the remaining
47%, through fixed assets such as
land and buildings.
Fosun and First Hospital of Qiqihar
also agreed to form a pharmaceutical
and medical device company, which
would supply both hospitals.
Qiqihar is the second biggest city in
China’s
eastern
Heilongjiang
Province.
Fosun Pharmaceutical recorded
$1.85bn in sales last year, and has a
market cap of $8.3bn.
Tony Tang, healthcare principal at
management consultancy Roland
Berger, told HCN that Fosun is
acquiring stakes in high-end chains
and will eventually look into
investing in specialty hospitals in
smaller cities. He says Fosun aims to
establish a presence in areas where
local authorities are keen on working
with the private sector.
8
+ February 2015
A 2014 Roland Berger survey
identified mid-sized hospital chains
as the main targets for investors, with
rehabilitation, gynecology, and
oncology being the most attractive
sectors.
Despite 42% of China’s 23,000
hospitals being privately run, they
only treat 9% of China’s 1.35bn
population. The government is
hoping to boost this figure to 20% by
the end of 2015. Policy reforms
include the development of
partnerships
with
commercial
insurers, the diversification of
ownership for public hospitals, and
looser regulation on overseas capital
investment.
This push toward market-driven
healthcare has encouraged foreign
operators to move into China. Since
November 2013, the Chinese
government has set up several pilot
Free Trade Zones (FTZ) in major
cities, for Wholly Owned Foreign
Enterprises to start operating
(although there are restrictions on
expansion). In July 2014, German
group Artemed was the first group to
enter an agreement with Shanghai
FTZ, to develop a 300-bed specialty
hospital.
Fosun International is China’s largest
conglomerate.
India’s third largest
hospital chain, Manipal
Hospitals, expands in
Malaysia
Manipal Group is investing $39m
into the construction of a new 220bed specialty hospital in Klang, a city
of 750,000 in Malaysia. CEO Dr.
Ajay Bakshi told HCN that the
company is aiming to strengthen its
presence in India and Malaysia, and
recently opened a clinic in Nigeria.
Bakshi told HCN: “Manipal Hospitals
started as a medical school in the
1980’s, and it has trained 20% of all
doctors in Malaysia. We only started
as a for-profit company in 2005,
quickly expanding in South India”.
Malaysia has an increasingly wealthy
population, with a developed private
hospital industry. “Klang is
underserved in terms of healthcare
facilities. The population is mostly of
upper-class Chinese origin, who
don’t want to travel to Kuala Lumpur
for hospital services”. Malaysia has
increased its health budget by 15% to
€5.6bn in 2013.
Bakshi says that Manipal Hospitals
does not want to expand further in
South East Asia, but to consolidate in
countries where it is already present:
India, Malaysia, and Nigeria.
In early 2014, Manipal Hospitals
opened an outpatient clinic in Lagos,
Nigeria, specialising in diagnostics
and imaging. It offers consultation
rooms, where patients can see
cardiologists
and
oncologists.
“Nigeria is an exciting but
challenging market. If the clinic is
successful, we might consider
opening other centres”.
Manipal Hospitals also sees growth
in its medicalised homecare branch in
India. “Homecare is booming in
India, with patients wanting to stay
with their families rather than be in
hospital. There are big opportunities
in this sector”. Manipal offers
everything from laboratory sample
collection through to nursing services
and home visits by doctors as well as
mobile dialysis and chemotherapy.
Manipal Hospitals has benefited from
private equity funding throughout its
expansion projects in and outside
India, with investments from the
IVFA and Kotak Mahindra. “We have
a strong balance sheet, and we are
able to take leverage”. Bakshi would
not comment on the group’s sales. In
2012 Manipal sales were reported as
over Rs.800 crore ($129m) and it
claimed that it wanted to grow to by
March 2016 to Rs.2,000 crore
($320m).
HCN news
Manipal Hospitals is owned by
Manipal Health Enterprises (MHE).
There are reports the group is
considering an IPO, but this has not
been confirmed.
The new specialty hospital in Klang
will expand the Arunamari hospital,
bought by Manipal in 2013, to
include tertiary care services. It will
employ 300 nurses and 60 specialists.
Manipal Hospitals has a network of
15 hospitals with a total of over 5,200
beds. It also manages several medical
schools in Malaysia, Nepal, Dubai
and Antigua. The group is now the
third largest private hospital chain in
India, after Apollo and Fortis.
Thai hospital chain to
invest €155m in
Myanmar projects
The Thonburi Hospital Group (THG),
Thailand’s third largest private
hospital chain, is expanding in
Myanmar and Vietnam. Dr Boon
Vanasin, chairman of the group,
explains why South East Asia is a
growing market.
The group is currently in the initial
phase of building two high-end
hospitals in Yangon. The first one
received an investment of €88m for
200 beds, and the other has obtained
€67m for 120 beds.
There is a demand for high quality
private hospitals in Myanmar, mostly
coming from the growing upper
class. It is estimated the private
hospital industry is growing 10
percent each year, with 15% expected
in 2015.
“Because
we
already
have
established a network in Thailand, we
expect to generate around 40% more
sales than our competitors in Yangon.
The new hospitals will be on average
30% cheaper than in Bangkok,” says
Vanasin.
THG is planning to open a third
hospital in Mandalay, also in
Myanmar. It will be the first Thai
operator in the country. It is expected
that the construction of high quality
facilities will lead to a decrease in the
high number of Myanmar patients
travelling to Thailand for healthcare.
THG is partnering with the Ga Mone
Pwint (GMP) group, a retail, trading,
and real estate developer, and with
the Aung Shwe Three International
(AST) Group.
It is planning further expansion in
South East Asia, particularly in
Vietnam. “We are building a 50 acres
medical centre in Ho Chi Minh,
which will include a hospital, a
nursing home, and a medical school”,
says Vanasin.
The 50-acre big project is already
half complete, with its launch
expected in early 2016. THG works
in partnership with Phuong Dong
Hospital Intracom Group, based in
Hanoi. The project requires a €132m
investment overall, and THG is
considering a €61m loan or private
equity to finish the project.
Vanasin
is
also
considering
expanding to Cambodia, although he
has reservations about the market.
“Due to geographic proximity,
wealthy Cambodians tend to travel to
Thailand for healthcare. Contrary to
Myanmar, investing is still expensive
and uncertain. We do not intend to
expand in the next two or three
years”.
THG currently operates a network of
22 hospitals in Thailand, providing
3,000 beds. It is the third largest
hospital group after Bangkok Chain
Hospital and Bangkok Dusit Medical
Services. The group generated sales
of €220m in 2014. It is planning to
list on the Stock Exchange in
Thailand (SET) in an initial public
offering during the first quarter of
2016. It raised €880m in its premarket stage.
Investment firm MPIC plans to
acquire 12
Philippines
hospitals
in
the
The hospital division of infrastructure
investment firm Metro Pacific
Investments Corporation (MPIC) has
announced its intention to buy 12
hospitals across the Philippines by
2019.
MPIC intends to expand outside of
Metro Manila, including in Batangas
and Cavite (Northern and Southern
Luzon), and the Visayas and
Mindanao. The group aims to become
the largest private hospital chain in
the Philippines.
It is also interested in investing in
other emerging economies in South
East Asia, including in Indonesia,
Vietnam, and Thailand.
Last July, the private equity branch of
Singapore’s sovereign wealth fund
GIC bought a 14.4% stake in the
hospital division of the MPIC, as a
means to fund fund its expansion.
Additionally, MPIC announced the
allocation of €2bn in capital
expenditures into its operations,
including €46m in its hospitals
division.
It is estimated the hospital division of
MPIC generated €145m gross profits
from $256m sales in 2014. The
group’s quarterly report for Q3 shows
a 15% increase YOY in core income
from €17m in 2013 to €20m in 2014.
It has seen a slower growth in core
EBIDTA (est. €59m in 2014)
compared to core income growth,
which the group blames on flat
interest expense.
60% of hospitals in the Philippines
are operated by the private sector
(2009 figures). It is estimated 48% of
inpatient care users go to private
hospitals. The MPIC network of
hospitals currently consists of five
hospitals in Manila, including the
high-end Makati Medical Centre and
Asian Hospital, and three provincial
hospitals.
MPIC is an investment holding
February 2015
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HCN news
company focusing on infrastructure
projects. It covers water utilities, toll
operations, power distribution, rail,
and hospitals. It is a local unit of
Hong Kong-based First Pacific
investment management and holding
company.
MPIC declined to comment on the
acquisitions and its future plans.
Temasek interested in
Global Health stake
Singaporean sovereign wealth fund
Temasek has acquired an 18% stake
in the owners of Medanta, a multispecialty hospital outside Delhi. Punj
Loyd,
an
engineering
and
construction group and one of
Medanta’s founding promoters sold
the stake. The deal is speculated to be
worth 7bn INR ($113m).
Global Health Private Ltd. is owned
by the global alternative asset
manager, The Carlyle Group; Indian
investor, Sunil Sachdeva; and famous
surgeon Dr Naresh Trehan.
The group also operates a medical
research institute and a medical
school in its Gurgaon campus, just
outside Delhi; a hospital in Indore,
Madhya Pradesh; a telemedicine
service; and two outpatient centres in
the Delhi region.
Last year Temasek invested $22m in
Healthcare Global Enterprises, a
cancer care provider based in
Bangalore. A stake in Medanta will
increase the fund’s presence in the
Indian healthcare market.
TMC Life Sciences
acquires medical hub in
Malaysia
Small listed-hospital operator TMC
Life Sciences is paying $111m for a
1.6 hectare development site in
Malaysia, 40kms from Singapore.
The site in Johor Baru, Malayasia’s
third largest city, has planning
10
+ February 2015
approval for a large medical hub. It is
being bought from a company owned
by businessman Peter Lim who also
has a majority of TMC Life Sciences.
The site is also 30% owned by the
Crown prince of Johor, Tunku Ismail
Idris.
HCN speaks to Dr. Wong Chiang Yin,
executive director at TMC Life
Sciences, about opportunities in the
Malaysian market.
The Hub will initially contain a 272
beds hospital, 400 outpatient clinics
and a mall. It could eventually
operate 500 beds and is due to be
completed in 2018.
Wong said the project has an
estimated gross development value
worth $335m, and will be operated by
Thomson International, whose parent
Thomson Medical is also controlled
by Lim.
Wong told HCN: “Malaysia is a very
attractive country for medical
tourism. Laws are relatively
transparent, there is excellent
training, and most medical degrees
from English-speaking countries such
as UK, Ireland and Australia are
recognised. Global insurers cover
most services offered by a developed
private healthcare sector”.
Wong says Thomson Iskandar will
not be particularly expensive for
patients due to the current cap
imposed on fees charged by doctors
by the Malaysian government.
“Private hospitals in Malaysia are
now cheaper than in Bangkok. There
is currently an undersupply of beds in
the Johor Baru area, and we expect
good demand from local and regional
patients”.
TMC Life Sciences is also expanding
its main hospital, Tropicana Medical
Centre. Located in Kuala Lumpur, a
$75m investment will grow it to over
550 beds.
TMC is also considering expanding
to other areas in Malaysia.
TMC Life Sciences is listed on Bursa
Malaysia. Although 2014 sales came
to just $24m, up 21%, TMC’s market
captalisation values it at US$245m,
up 90% over the year. After
completion of both the Kuala Lumpur
and Johor Baru projects, TMC will
own 1,050 beds in total.
Health Care at Home
India launches palliative
care services
Health Care at Home India (HCAHI),
a company partially set up by the
founder of Health Care at Home UK,
has just opened a palliative care
branch in North India. Vivek
Srivastava, the CEO of HCAHI,
explains to HCN why medicalised
homecare services are booming.
“We are the first operator to offer
comprehensive cancer homecare
services in India, with 24h support.
Palliative care complements our
existing oncology division, which
provides chemotherapy.”
HCAHI offers services ranging from
post-surgical care to physiotherapy,
through a nutrition branch and
cardiac care.
It also includes a hospitalisation at
home division.
Although it would not disclose sales
figures, HCAHI says it is investing
over $30m into their operations over
the next 4-5 years.
Set up in 2013 and serving 4,000
patients today, it claims to be the
largest player in India for homecare,
and aims to generate $154m sales by
2020.
Srivastava argues the growth of
homecare follows both economic and
cultural trends. “Homecare is cheaper
for patients, especially those
requiring long-term care. Besides,
dying alongside family members is
an important Indian tradition”.
Despite the shift to homecare being a
HCN news
global phenomenon, public payers in
India are still relatively neutral in
encouraging patients to switch,
contrary to European countries.
Indians able to afford palliative
homecare are more likely to use
private hospitals, and insurers tend to
limit reimbursements.
“Homecare is not yet covered by
insurance groups, although HCAHI is
currently speaking to global players
such as AXA and Allianz. For basic
services such as physiotherapy, it is
less expensive than people tend to
perceive it, with visits ranging from
500-1500 rupees a visit ($8-24).”
Unlike
hospitals,
medicalised
homecare is not seen as a highmargin business but it is high volume.
A report from the University of
Pennsylvania quotes Mahendran
Balachandran, a partner at venture
capital fund Accel Partners, which
has invested in Portea Medical, a
Bangalore-based home health care
firm: “The home health care market
in India, currently estimated to be a
$2 billion to $4 billion-a-year
opportunity, is driven by an aging
population, the increasing prevalence
of chronic diseases and the need for
better quality post-operative and
primary care.”
It depends on volume. The market is
estimated to be worth $3bn in India.
The company is based around Delhi,
Punjab, and Rajasthan, regions where
palliative care services are now
offered.
“We started with no outside funding,
as HCAHI received capital from
Dabur, an investment company. It is
now looking at raising funds through
venture capital and private equity”.
Srivastava would not comment on
any specific firm.
Both HCAHI and Dabur are operated
by the Burman family, who own 65%
of HCAHI, alongside Charles Walsh,
the founder of HCAH UK. Srivastava
says the group intends to consolidate
its presence in India, before looking
abroad in 2-3 years.
Diaverum targets
middle-income countries
for dialysis
Dialysis operator Diaverum recently
entered Kazakhstan with the
acquisition of Nefros Asia.
The deal is Diaverum’s first in Asia,
outside of the Middle East. We talk to
Diaverum president Dag Andersson.
Diaverum has bought a total of nine
clinics. Andersson says that the move
reflects the increasing willingness of
middle-income countries to pay for
dialysis treatment for their citizens.
He says: “In the last three years we
have seen a huge change in attitude”.
He agrees that often countries see
healthcare provision as something
which is intrinsically linked to
political stability.
He said: “It is a big commitment as
dialysis is life-long and costly. I guess
it costs a minimum of $5,000$10,000 per patient per year. In the
USA it costs $35,000-40,000 per
capita and in Germany €40,000.
Costs depend on the regulatory
regime and labour costs.
“In France a head nurse costs
€100,000 a year with social costs, in
Portugal €20,000. In Uruguay, you
have to have a nurse for every three
patients, in Portugal it is one for six.”
In new countries where there are no
precedents he says it is easier to agree
to larger integrated health packages
with Diaverum handling everything
and with projects extending back into
diabetes treatment and prevention.
But one of the issues is that growth
rates tend to be very high as more and
more patients who previously could
not have treatment come forward.
“Growth rates are 16-17%, not the 23% we see in Europe. Governments
have to be ready for that.”
The big issue for Diaverum is having
a skilled workforce. Often it has to
convert doctors into nephrologists. It
is investing heavily in setting up an
online Diaverum Academy. “Before
we were just fiddling at the fringes
but now we are fully committed.
We’ve got a headmaster and we are
going to provide a comprehensive
training package. Dialysis is all
about the treatment of co-morbidities
so we have to educate physicians and
nurses on diabetic and cardiovascular
care. That will include summarising
important medical papers for our
workforce, as well as webinars etc.”
He says that Diaverum will enter a
new middle-income country shortly.
Meanwhile Diaverum will have more
patients in Saudi Arabia by the end of
the year than anywhere else.
It is building some 94 clinics in total.
“By the end of 2015 we will have 30
up and running.”
Israeli companies
looking abroad for big
business
Israeli private operators often look
abroad for business opportunities,
particularly in medical tourism and
ehealth. We speak to Barak Singer
and Sivan Sadan, co-founders at Or
Capital Healthcare Partners, a
boutique Israeli investment firm
specialising in healthcare.
“Israel itself is a very small market.
Companies tend to be very
innovative, but look abroad
according to a dual logic: financial,
for venture capital and economic, for
larger markets.”
The United States remains the most
attractive country for Israeli
companies to expand into, but China
and Eastern Europe also prove
popular.
The reverse is also true, with Jinpeng
February 2015
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11
HCN news
Group announcing its acquisition of
Natali Healthcare Solutions, the
largest private healthcare and
homecare service provider in Israel,
for €88m in March 2014.
The main strengths of the Israeli
market can be found in the high
quality of care of its medical
institutions and its advanced
technological innovations.
In 2013, Bloomberg ranked Israel’s
healthcare system fourth in the world
in terms of efficiency.
Present in Europe, private operator
iMER describes itself as a global
medical service provider. It stands for
‘International Medical Evaluation
and Referral’, and provides
diagnostics through telemedicine and
actual evacuation to top medical
institutions. “iMER raised €6m
capital through private equity fund
Viola. It caters for high-end medical
tourism from South Eastern Europe in
particular”.
Digital health is a leading sector, with
Israeli companies innovating toward
advanced monitoring technologies.
EarlySense, a company offering
monitoring devices for heart and
respiratory rates, has just secured
€18m financing, including €9m from
Samsung Ventures.
EarlySense monitoring system can be
found in the homecare sector, as well
as hospitals and rehabilitation clinics
in Europe, Asia, and Australia.
In January
2015,
LabStyles
Innovations signed a partnership
agreement with Maccabi Healthcare,
Israel’s largest Health Maintenance
Organisation, to implement a
telehealth strategy.
LabStyles developed ‘Dario’, a
cloud-based smart meter for diabetics
to measure their glucose level.
In 2014, it launched in the
Netherlands, the UK, Australia, and
New Zealand after receiving
reimbursement statuses.
12
+ February 2015
Sub-Saharan
Africa
Roaming saleswomen
boost healthcare in
Uganda and Kenya
In Uganda and Kenya, a network of
more than 1,200 women are going
door to door selling health education
and essential basic healthcare
products to those most in need.
Living Goods uses a microfranchising model, made famous by
the Avon Ladies in late 19th century
America, to improve access for poor
communities, whilst creating an
income for these entrepreneurial
women. We talk to Molly
Christiansen, director of impact and
advocacy at Living Goods, to find out
more.
Living Goods began in Uganda in
2007, after founder Chuck Slaughter
worked for a charity in Kenya that ran
small medicine stores on street
corners.
He discovered that the distribution
network
for
medicine
was
underdeveloped and were often out of
reach of those who need it most,
especially in rural Africa.
“Millions of children die from
preventable diseases because they do
not have the right access to medicine
or healthcare. In the public sector,
people will often travel for healthcare
but find that health workers are
unavailable or the medicine they need
is out of stock. The private sector,
where around 50% of people in
Uganda seek care, is under-regulated
and there has been a problem with
dangerous, counterfeit medicines and
poor quality health care,” says
Christiansen.
Living Goods is set up as a non-profit
and earns revenue from wholesale
margins on its product distribution.
The rest of its operations are
supported through donations and
grant capital, mostly from private
foundations. It has been in
partnership since inception with
BRAC, a large NGO with a history of
micro-finance projects.
Living Goods agents take out an
inventory loan of around $75, which
they pay back weekly over the course
of a year. Christiansen says, “This
loan purchases a standard starting
package and then agents are free to
procure as needed based on customer
demand. They are however, required
to be in stock with critical health
products such as treatment for
malaria, diarrhoea, pneumonia and a
clean birthing kit.”
Living Goods offer a range of
products from consumer goods such
as soap and toothpaste, to basic
medicines, mosquito nets, solar lamps
and clean burning stoves.
Products are sourced from national
wholesalers, with certain products
such as sanitary towels and condoms
imported from abroad by Unilever
and P&G, whilst others are locally
produced.
Christiansen says it is working with a
local supplier to produce a fortified
weaning cereal for children.
Prices are set centrally, with the aim
to sell these products at below market
value.
According to Christiansen, there is a
spectrum where low volume, high
margin products such as clean
burning stoves can sell for around
30% below market value, and high
volume consumer products are aimed
to be 5% below.
Women are recruited from the
community based on referrals from
others. “Our recruitment process is
pretty rigorous. We test numeracy and
literacy and to check how connected
to the community and how big their
network is. We are looking for the
strongest people with large networks
in the community to help maximise
HCN news
our reach” she says.
“Our aim is to create community
health workers who will be able to
bridge the gap to essential medicine.
Mobile phones are fast becoming the
backbone of the whole system. Our
agents are on call health workers,
where people can request medicine
and our agents can send messages to
remind them to take the medicines
they have purchased.”
Each agent is expected to serve
around 100 households, mostly
working alone but sometimes they
will partner up. “We have a few
mother and daughter, and husband
and wife teams. We are currently
trialling this model with male agents,
the early indications are positive but
we need to do more analysis.”
Living goods currently has nine
branches in Uganda and one in
Kenya. These branches act as mini
warehouses and recruitment centres
for the surrounding areas.
“We are looking to expand in Kenya
and to grow Uganda from 1,200
agents to 6,500 in the next few years.
Elsewhere, we are looking to partner
with other organisations and NGOs
rather than directly set up operations.
We are working on a partnership in
Myanmar, and have a few other
targets in mind.”
Our Analysis: This micro-franchise
model is proving to be a success, with
applications for many emerging
economies where the issues of
affordability and access to care are
high barriers. Christiansen says that
there are as yet unpublished results,
which shows the Living Goods model
significantly reducing under fivechild mortality.
With door-to-door delivery and below
market prices, it will be interesting to
see what impact Living Goods has on
the stores that have traditionally sold
these products. The effect could
either be damaging, or it could force
these stores and private sector
providers to improve stock levels and
quality. For those most in need,
Living Goods eradicates the risk of
receiving counterfeit medicine.
Private equity spots
opportunity in Ethiopian
labs
Mauritius based private equity firm,
Ascent (Ascent Capital Africa Ltd),
has invested $2.5m in an Ethiopian
lab group. Ascent took a stake of
roughly 50% in Medpharm Holdings
Africa and will look to grow the
diagnostics laboratory aggressively.
We spoke to Guy Brennan, a partner
at Ascent.
Brennan sees huge potential in the
Ethiopian lab space. “There is a huge
supply and demand mismatch, and as
with the rest of healthcare, people are
willing to pay”. Medpharm currently
has excess capacity and significant
potential for organic growth.
Lifestyle diseases are increasing
amongst Ethiopia’s growing middle
class, but costs are a fraction of the
developed world. “Cholesterol tests
cost less than a tenth of the US price.
A lab technician earns more than five
times more in South Africa and far
more in the US”.
Medpharm is also growing its product
range in the wellness market and
preventive medicine. It offers a
product with 30 tests for $25. “The
same raft of tests would cost almost
$1,000 in the US”.
The group has ambitious expansion
plans and sees a number of factors in
its favour.
Medpharm is the only Joint
Commission accredited referral
laboratory in Africa, according to
Ascent. Ethiopian Airlines also has
direct flights to around 40 countries
on the continent.
Foreign lab groups are not allowed to
operate in Ethiopia and Medpharm is
currently the only player with a
national operating license.
The difficulty of staff retention has
been negotiated through training
programmes
with
Ethiopian
universities. Medpharm takes top
students for internships at its lab. The
founder and CEO, Tamrat Bekele,
former director of operations at US
group Labcorp, is actively involved
in their training.
Brennan says it has good
relationships with suppliers of
reagents, but it is still a major cost as
the main input in the business.
Ascent see an opportunity to develop
outsourcing internationally, starting
with East Africa. “Outsourcing from
the US is a pipedream, but an
interesting idea for tests that are not
time-sensitive. Unlike India, Ethiopia
has daily direct flights to the US”.
For now, no further healthcare
investments
are
in Ascent’s
immediate pipeline. Hospitals have
issues with scale.
Labs are relatively neglected and
have better potential as a scalable and
defensible business model.
Medpharm is Ascent’s inaugural
investment through the Ascent Rift
Valley Fund, which is domiciled in
Mauritius. The fund focuses on
investments of between $2-10 million
in Kenya, Uganda and Ethiopia. It is
a generalist fund with no particular
sectoral focus.
South Africa: the view
from the insurers
Private Medical Insurers (PMIs) in
South Africa say they don’t fear the
introduction of a National Health
Insurance policy. They don’t think the
government is likely to restrict
private insurance to top-up cover,
over and above a new public
insurance scheme.
HCN spoke to two of South Africa’s
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HCN news
biggest
insurers:
Dr
Jonny
Broomberg, CEO of Discovery
Health, and Heyn van Rooyen,
Principal Officer for Medihelp.
South Africa is undergoing an
extensive process of healthcare
reform. The introduction of national
health insurance (NHI) hopes to
improve quality and coverage within
the flagging public system, but the
white paper detailing the plans has
been delayed.
This is fuelling uncertainty in the
private sector. PMIs operate as
administrators of insurance funds or
medical schemes in South Africa.
They stand to lose more than most if
the NHI interferes with the insurance
market.
Discovery Health Medical Scheme is
the largest with around 2.6 million
members. Its publically listed
administrator made profits of $105m
for the financial year ending 30 June
2014.
Strata Healthcare Management
administers Medihelp. It covers
220,000 South Africans, making it
the fourth largest open medical
scheme.
Both allayed fears of an NHI
clampdown – restricting them to a
top-up role is not politically feasible
in their view. “Many people have
been paying into schemes for a long
time and they will not simply accept
public services in lieu of access to
private healthcare” said van Rooyen.
Other concerns were raised with the
funding model for NHI.
South Africa’s 5 million taxpayers
would find it difficult to fund lavish
spending increases – an additional
3% of GDP on top of the current 4%
level, according to the NHI green
paper.
Constitutional challenges may also
occur when shifting to a centralised
payer system.
14
+ February 2015
“The more likely scenario is that it
becomes a competitor to the medical
schemes starting at the lower end of
cost and coverage,” said Broomberg.
Existing clients of the private system
are unlikely to switch to the public
sector unless forced.
There is a stark difference in quality.
But this leaves the private sector
serving an existing elite of around
20% of South Africans, with little
room to grow.
Discovery is hoping to launch low
cost medical schemes and both
groups were keen to stress ways to
extend coverage.
Discovery estimate that the floor
price created by PMBs (prescribed
minimum benefits) is unaffordable
for 1-2m households. Its primary care
focused offering aims to extend
coverage by 5m people.
Subsidising insurance for lowincome households at the cost level
of PMBs is another option. Bringing
in the majority of clients through
employment would also avoid
adverse selection and reduce risk.
Regardless, these are testing times for
insurers.
The market grew just 0.4% in 2014
and the number of major open
schemes has fallen to five. Discovery
now has a market share of 52% of
open medical schemes, which are not
restricted to certain professions, and
34% of the overall market.
Containing healthcare costs is vital
and the NHI raises fears of medical
inflation. Capacity is limited in
certain medical professions but
Broomberg believes “overall there is
downward pressure on prices”.
Is the dominance of the big hospital
groups in South Africa a concern?
Over-servicing is an issue, but they
believe there is good competition
between the hospitals.
The insurers preferred to focus on a
difficult regulatory environment. The
schemes need to hold 25% of their
balances in reserve; the PMBs cover
25 chronic and 26 acute conditions
and are expensive to cover; and each
insurance plan has to be financially
self-sufficient. Doctors are also
eligible to bill for their fees
separately, leading to variability in
pricing.
Discovery, however, certainly has an
advantage over the smaller schemes.
Broomberg put its success down to
innovation, a focus on service and
better management of claims risk.
“The total cost of care is substantially
lower for clients of Discovery, around
12-15% for the same treatment”.
Lower premiums means more clients
and greater bargaining power.
Van Rooyen, however, disputed
Discovery’s ability to squeeze costs.
He says strong relationships with the
providers and the non-profit status of
medical schemes negates substantial
advantages.
Differentiation predominantly occurs
through service offering.
Both
groups
also
discussed
possibilities across the rest of Africa.
“We monitor the big African markets.
At some point we will definitely
move into these markets but we
haven’t found the right opportunity
just yet,” said Broomberg.
Enormous potential
across Africa for
innovators: KPMG
Innovative technology and business
models are necessary to succeed in
Africa according to KPMG’s head of
healthcare in the continent. Dr
Anuschka Coovadia says universal
health insurance will create stable
markets where before there was only
need.
“A lack of health insurance creates
uncertainty of demand. Many
HCN news
organisations have failed because
they didn’t create a market around
them. The real innovators and success
stories are now doing this.
Innovations such as payment systems
that use mobile money are creating
greater accessibility, enhancing trust,
lowering risk and securing demand”.
Innovative PPP business models can
also help to leverage existing
resources to succeed in a challenging
regulatory
environment
and
overcome the difficulties of accessing
capital.
She said the African market is not
constrained
by
“entrenched
infrastructure and health systems”.
This is an advantage as it is therefore
more open to innovation.
Coovadia raised two examples of
private sector success stories in
Africa.
PharmAccess is a group of non-profit
organisations working to improve
standards and access within private
healthcare in Africa. The group has
three complementary programmes.
The Medical Credit Fund allows
providers access to capital alongside
technical assistance. The Health
Insurance Fund finances healthcare
services. Mobile payment systems
make insurance products more
accessible and reliable.
SafeCare uses clinical standards and
improvement
programmes
to
improve quality in healthcare
facilities.
Coovadia also praised The Abraaj
Group, a private-equity investor, for
pioneering investment in African
healthcare. Abraaj has invested
around $350m into 17 healthcare
businesses in Africa since 2003. She
says a specific focus on businesses
with middle and lower income clients
has contributed to its success.
Investors will need a long-term view
to secure profits and to be clear of
their priorities. Understanding the
local situation on the ground and
focusing on need should help to drive
investment choices.
Which markets are
attractive and why?
becoming
“Political commitment is the basis for
action. Certain countries have this
commitment: Nigeria has been vocal
in its desire to implement more
universal healthcare coverage. East
African countries will not be far
behind!”
Latin America
Mexican sugar clinics
reduce annual cost of
diabetes care fivefold
Four out of every five people with
diabetes live in the Developing World
according to the International
Diabetes Foundation (IDF). Clínicas
del Azúcar is a Mexican chain of
diabetes one-stop-shops that reduce
the cost of care by fivefold. We talk to
founder and CEO Javier Lozano
Garza, who has an MBA from MIT,
to find out more.
More than 14 million Mexicans
suffer from diabetes – it is the
country’s number one cause of death.
Lozano says only around 10-15% of
the population can afford private
care.
Public hospitals are plagued by long
waiting times and differing levels of
care, and so around 70% of the
population ignores care.
Average annual fees for care in the
Mexican private system are around
$1,000. Clínicas del Azúcar charges a
$200 annual fee, the package
includes all visits to doctors,
psychologists, laboratory diagnostics,
nutritionists and ophthalmologists.
Medication and treatment of
complications are the only things not
included in the package.
“The two biggest barriers to care for
the low and middle-income
population are affordability and
convenience. We have created onestop-shops with all the medical
professionals under one roof,
appointments are kept to one hour
and we even have specialty retail
stores stocking diabetic products in
each location. We are able to offer
low prices because we have spent
time developing software and using
data to track and automate each
patient’s care process,” he says.
By limiting patient visits to one hour,
having all the specialists under one
roof, and streamlining patient
records, the clinics are able to ensure
that patients are not left waiting for
delays or having to book multiple
visits to specialists at different times
and in different locations.
It seems like a simple but innovative
idea which could be replicated in the
management of other chronic
diseases.
Mexico has universal healthcare
insurance, but the structure is tiered
based upon employment, about 60%
of the population is covered by
government facilities and around 7%
have private insurance.
Low-income families – around 30%
of the population – are covered by
insurance that only provides basic
primary care.
Lozano says that as a result, “around
50% of diabetics will pay out-ofpocket.
A lot of people are frustrated by long
waiting times or they are assigned
doctors they are not happy with and
so they will find alternatives or
ignore treatment altogether.”
Clínicas del Azúcar, backed by
venture capital and impact investors,
started in 2012 and has treated more
than 10,000 patients. It now has five
clinics in Nuevo León, northern
Mexico, with plans to open three
February 2015
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15
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more in 2015.
“We have plans to expand our
operation throughout Mexico but that
takes time and resources. As our
patients pay out-of-pocket it is
important for us to maintain quality,
accessibility and keep costs low,” he
says.
Lozano says “the model for diabetes
care is similar the world over. We
have identified a few more markets in
Latin America where our model
would work. Brazil for example, is
very similar to Mexico.”
Our Analysis: Affordability and
access are important barriers to
overcome in most emerging
economies.
Low cost one-stop-shop such as
Clínicas del Azúcar or Apollo Sugar
clinics in India might well be the
future of diabetes management in the
Developing World.
Rest of the
World
India
Apollo to collaborate on
transplants with Pakistan
private hospital
India’s biggest private hospital group
Apollo Hospitals has established a
liver ward in Pakistan’s Dr Ziauddin
hospital and will be undertaking joint
surgery procedures with the Karachibased hospital.
A combined kidney and liver ward
unit has been established where
patients will be sent to India for pretransplantation surgeries if required
after undergoing diagnosis and
screening at Ziauddin hospital in
Karachi.
In the so-called ‘peace clinic’
platform, Indian doctors from the
Apollo group will perform surgery on
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+ February 2015
Pakistani patients.
Apollo Hospitals group medical
director Professor Anupam Sibal said
that Apollo receives approximately
100 to 140 cases of kidney and liver
transplant cases from Pakistan each
year.
The success rate of these cases is
almost 90%, he said at a press
conference.
This venture is the latest in several
Apollo has been pursuing across the
Developing World and Europe. It has
signed deals with Ghana and
Macedonia’s governments.
Apollo to train
Macedonian doctors
Apollo Hospitals Group, India’s
biggest private healthcare provider,
has signed an agreement with The
Republic of Macedonia that will see
the Indian group training Macedonian
medical
specialists,
nurses,
technicians and other health
professionals in India.
The memorandum of understanding
will impact a number of specialities
including
surgery,
cardiology,
neurosurgery, and radiology.
“The purpose behind this union is to
provide quality education, training,
and development to healthcare
workers of the Republic of
Macedonia,”
an
Apollo
representative said.
Apollo also plans to launch a
telemedicine service for patients in
Macedonia, according to a press
release.
Apollo signs tertiary
healthcare deal with
Ghana
India’s biggest private hospital group
Apollo has signed a memorandum of
understanding with Ghana that will
focus on improving tertiary
healthcare services in the African
country.
Apollo’s success in India shows that
it is experienced in addressing the
healthcare needs of Developing
World countries, a press release said.
The group will work directly with
Ghana’s ministry of health on
revamping the country’s healthcare
system.
The deal states that Apollo will
provide high-end tertiary services to
patients referred by the government
at Apollo Hospitals in India, whilst
Apollo consultants will work in
Ghanaian clinics specialising in
cardiology, oncology, orthopaedics,
nephrology,
neurosurgery
and
paediatrics.
Apollo White Dental
plans to grow to 100
clinics by mid-2015
Apollo White Dental, the dental
subgroup of India’s largest hospital
group Apollo Hospitals and joint
venture with Trivitron Health Care,
plans to open 24 more dental clinics
by the middle of 2015, taking its
number to 100.
The plans were outlined in a
statement by Apollo white following
the opening of its 76th clinic in the
eastern town of Tirupati, Andrah
Pradesh on January 29, 2015.
Apollo White aim for a one-stop
solution with consultants from all six
dentistry specialities: prothodontist,
endodontist, periodontist, orthodontist,
pedodontist and oral and maxillofacial
surgery.
Sanofi to buy 20% stake
in Apollo Sugar
French drug maker Sanofi has
invested Rs 90 crore ($15 million) to
buy a 20% stake in Apollo Sugar, a
diabetes clinic chain of India’s largest
hospital group Apollo Hospitals.
HCN news
The deal values Apollo Sugar at Rs
450 crore.
The deal follows a strategic
agreement between the two firms
announced in September 2014.
Apollo Sugar is a chain of 50 clinics
spread throughout India focussing on
increasing access to diabetic care.
Over 65 million people in India have
diabetes, with a further 77 million
diagnosed as pre-diabetic.
The investment includes a fresh issue
of securities alongside the 30% stake,
but Apollo did not say how much of
the money will go into Apollo Sugar.
Vatika Group to invest
$32 million in Indian labs
New Delhi based real estate group
Vatika has announced plans to enter
the healthcare sector with an Rs 200
crore ($32 million) investment. In the
next two years, the group plan to
open around 15 diagnostics
laboratories in India. Vatika has
acquired the two diagnostic labs
Health Square from Spry Hospitality
for Rs 30 crore and which it
rebranded as Vatika Medicare.
Vaitka has said the 15 labs will be
mostly in the metro cities and two
diagnostic centres are already open in
South Delhi and Guragon. The focus
will be to initially expand in the Delhi
area before expanding into other
metros like Bangalore and Mumbai.
The company said Vatika Medicare
will act as a “one-stop-shop” for
cardiac, dental, neurology, radiology
and pathology lab needs.
Sub-Saharan Africa
Netcare seeks out
majority stake in Indian
group
South African hospital group Netcare
has joined the race to take a majority
stake in India’s Seven Hills
Healthcare.
Netcare has put forward Rs 1,800
crore ($289m) for a 60% stake in
Mumbai-based
Seven
Hills
Healthcare, which is jointly owned
by JPMorgan Private Equity Fund
and Jitendra Das Maganti.
Seven Hills Healthcare owns one
hospital
in
Mumbai
and
Visakapatanam, eastern India.
"Depending on valuation, the
investors as well as the promoters
could look at selling up to 75% stake
in the company," an investment
banker with knowledge of the
development told the local press.
Seven Hills has denied reports of a
stake sale. JPMorgan's private equity
fund purchased a 35% stake in the
company by investing $72 million in
May 2008, and five years later,
invested another $50 million. JP
Morgan PE, along with Maganti has
appointed investment bank Goldman
Sachs to look for buyers.
SA’s Life moves into
Poland with two
acquisitions
South African group Life Healthcare
has acquired two new facilities in
Poland as part of its international
expansion plans.
It has bought Sport Klinika, a 46-bed
orthopaedic
and
rehabilitation
services hospital in Zory, in the
Silesia region, for R250m ($21.5m),
and Warsaw-based Kardiologii
Allenort, a in-patient cardiac care
group, for R430m ($37.1m).
Life’s acquisitions were organised by
its Polish subsidiary Scanmed
Multimedis.
Kliniki Kardiologii Allenort offers
cardiology services to around 1.6m
people who are funded by Poland’s
national health insurance.
In May 2014, Life bought a 80.7%
state in Scanmed Multimedis. It has
since taken full ownership and has
acquired a number of ambulatory,
diagnostic and specialist service
facilities.
According to a press release, Life has
identified emerging countries with
high growth potential, such as Poland
and India, as its areas of focus.
Poland is the sixth-largest economy
in Europe with average annual gross
domestic product growth of 4.3%
over the past decade. Around 10% of
Poland’s 38m strong population have
private health insurance.
Netcare boosts
investment spend to
$170m in South Africa
Johannesburg-listed private hospital
chain Netcare Group, has increased
its 2015 capital expenditure to R2bn
($170.1m) for growth in the next
coming years.
Netcare currently operates hospitals
in South Africa and the UK.
CFO Keith Gibson told local media
the increase in capex – the biggest in
the Netcare’s history – stems from a
growing demand for private
healthcare in South Africa.
The $170.1m cap-ex will be used
only in South Africa with the money
covering green and brown-fields
expansion projects and other
refurbishments.
These include the building of a brand
new 100-bed hospital in Pinehaven,
west of Johannesburg. It also includes
a new 170-bed hospital in Polokwane
in South Africa’s Limpopo Province,
according to Ventures Africa.
The new Netcare Christiaan Barnard
Memorial Hospital in Cape Town is
also on track to open in 2016. In total,
the company’s expansion and
refurbishment projects will see the
construction and completion of 510
new beds in 2015, including the
February 2015
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17
HCN news
newly acquired
Hospital.
Ceres
Private
Gibson said the company’s strategy is
focused on adding capacity to
existing hospitals and building new
ones where the company has no
presence.
Private equity sees
opportunity in Ethiopian
healthcare
The Ascent Rift Valley Fund,
managed by private equity firm
Ascent Capital, will make its first
investment in an Ethiopian healthcare
services provider. The $2.5m
investment will give Ascent around a
50% stake. The firm expects rising
consumer demand in Ethiopian
healthcare services.
The firm will add another $10m to its
east Africa fund this year. Guy
Brennan, a partner in the firm, told
Reuters it hopes to increase the fund
from $50m to $60m by mid-2015. It
launched in 2014 with $40m of
capital. The fund is domiciled in
Mauritius and has a range of $2-10m
for investments.
Ethiopia is Africa’s second most
populous nation and has been
growing strongly at around 8% per
annum.
Malaysia
High valuations for
healthcare in Malaysia is
good news for Qualitas
Malaysia-based healthcare provider
Qualitas Healthcare Corp, which is
seeking a listing on the Malaysian
Stock Exchange, is expecting a high
earnings multiple valuation when it
IPOs.
Qualitas, which is controlled by
Singapore-based private equity firm
Southern Capital Group Ltd, may be
seeking to secure a price/earnings
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+ February 2015
(PE) multiple as high as 20 times
earning in its IPO, according to one
banker who spoke to the local press.
Three other listed healthcare
companies have high valuations,
making Qualitas’ prospects look
positive. KPJ Healthcare Bhd, IHH
Healthcare Bhd and TMC Life Bhd –
trade at PE multiples of 27.24 and
55.26 and 79 times, respectively, of
their 2014 earnings.
Qualitas, founded and run by
managing director Datuk Dr Noorul
Ameen, owns and operates primary
healthcare centres – largely
outpatient services at primary care
doctors offices – across Malaysia,
Australia, Singapore and India.
According to company documents,
Qualitas group owns and operates 94
GP clinics in Malaysia and has a
further 133 affiliated clinics in the
country, giving it a 27.6% market
share in 2013, according to market
research company Frost & Sullivan.
It has 12 centres in Australia, one in
India and one in Singapore.
IHH Health and TPG
Capital management vie
for control of Global
Hospitals
Malaysia’s IHH Healthcare and US
private equity firm TPG Capital
Management are said to be
competing to buy a controlling stake
in India’s Global Hospitals, a deal
which values the privately owned
chain at $350m.
Global was put up for sale in 2014,
and founder and current chairman K
Ravindranath and private equity firm
Everstone Capital are amongst those
selling their holdings.
If successful, IHH would expand its
Indian foothold, as it already owns
close to 11% of Apollo Hospitals,
India’s largest private hospital chain.
For TPG, the deal would be its largest
acquisition to date in Indian health
care.
Global Hospitals operate eight
hospitals in Mumbai, Chennai,
Bangalore and Hyderabad with more
than 2,000 beds.
China
FC to loan $96 million to
promote hemodialysis in
China
The
International
Finance
Corporation (IFC), a member of the
World Bank Group, is to loan ¥600
Million ($95.8m) to help China
improve the quality and lower the
price of hemodialysis treatment for
thousands of Chinese patients
suffering from chronic kidney
disease.
A limited supply of dialysis
equipment means that dialysis
treatment rates in China are 30%
lower than the global average, only
one-tenth that of Japan. This loan will
help China’s leading medical device
companies such as Shandong Weigao
Group increase production capacity
of dialyzers and related products
whilst also helping to create more
independent dialysis centres. Locally
manufactured products will reduce
the cost of treatment and increase
access for low-income families. This
loan is the second Weigao has
received from the IFC, following a
$20 million loan in 2007.
Mayo Clinic sees further
opportunity in China
American hospital group Mayo
Clinic has signed a partnership
agreement with Medisun Holdings of
Hong Kong. Medisun Holdings is a
medical investment group that
focuses on R&D for regenerative
medicine and hospitals and operates
throughout China.
The National Investments Fund,
which owns 30% of Medisun, stated
HCN news
“Mayo Clinic will provide healthcare
consulting services to aid Medisun’s
work providing high-quality medical
services to patients in China”. The
collaboration is also expected to
result in patient referrals between
China and Mayo’s clinics in the US.
China is now encouraging foreign
investment in healthcare. Mayo
Clinic has already agreed on a joint
venture with Hillhouse Capital to
take advantage of the change in
policy.
Medisun, on the other hand, has
invested in a wholly owned
subsidiary of Belgian and French
listed Cardio3 BioSciences.
Middle East
Alkhabeer acquires
majority stake in integrated
healthcare group
Saudi Arabian asset management and
investment firm Alkhabeer Capital’s
healthcare fund has acquired a
majority stake in Eed Group, a Saudi
integrated healthcare provider.
Eed Group, established in 2001,
began operations as an independent
healthcare provider focusing on
aesthetic surgery and outpatient
specialty primary care services but
has moved into pharma, med tech and
third party management and
operations.
‘Alkhabeer Healthcare Private Equity
Fund I’ is Sharia law compliant and is
a closed-ended investment fund. It
was launched in Q4, 2014.
Private healthcare providers currently
only make up 32% of the local Saudi
Arabian healthcare market.
Amanat Holdings posts
$3.9m loss for 2014
Dubai-based
healthcare
and
education start-up Amanat Holdings
has posted a net loss of Dh14.49m
($3.9m) for the November 17December 31, 2014 period, according
to a press release from the Dubai
Financial Market.
The statement said Amanat’s net
cash, generated from operating
activities, amounted to Dh8.9m
($2.4m) during the period ending
December 31, 2014. Its net balance of
cash and cash equivalents come to
Dh38.7m ($10.5m).
The company’s total assets touched
Dh2.5 billion in the period ending
December 31.
In late 2014, Amanat said its IPO,
which valued it at Dh1.375 billion
($374m), was oversubscribed.
It plans to deploy 95% of its capital
on acquisitions and partnership with
existing or under development
companies, and use 5% of the capital
to establish new ventures, according
to the statement.
The Gulf’s healthcare spending
expected to grow at an annual rate of
10.7% until 2017, according to Gulf
News.
Al Masah Capital
expands operations in
the UAE and South-East
Asia
Dubai based Al Masah capital, which
launched in 2010, has raised more
than $1bn to date and expects a
strong pick-up to come, boosted by
private equity involvement in health
care.
Al Masah manages more than AED
1bn ($272m) of assets in its private
equity portfolio focussing on health
care, education, food and beverages
and logistics.
Al Masah’s health care platform,
Healthcare MENA was recently
named Private Equity Fund of the
Year at the MENA Fund Manager
Awards in Dubai and CEO Saliah
Dash says its annual average profit
growth is more than 65%.
With over 90 % of the fund deployed
in the Gulf region, and nearly 70% in
the UAE, it is in the process of
creating a health care brand in the
UAE, to be announced by March
2015.
Last year the company raised close to
$600m in funds from wealth
managers, private banks and
sovereign wealth funds. Dash
believes the decline in oil prices has
created
attractive
buying
opportunities for private equity.
NMC Health plans to
dual-list
Abu Dhabi based NMC Health, listed
in London since 2012, has revealed it
plans to dual list in Abu Dhabi by
mid-2015.
The comments by NMC chief
executive Binay Shetty came after
Rashed al-Baloushi, CEO of Abu
Dhabi
Securities
Exchange
announced that other local firms that
are listed on the London Stock
Exchange have agreed to dual-list in
Abu Dhabi.
Al-Noor Hospitals, which also listed
in London in 2013, has denied that it
will dual list. London listings have
been popular since the 2009 financial
crisis that hit the UAE, but local
markets are attractive once more
since MSCI upgraded local stocks to
emerging market status.
NMC raised £117 million ($176
million) in its initial IPO and saw its
share price rise from 479 pence to
508 pence since the comments on
January 26th.
Aster DM to invest $136
million in the GCC
Dubai-based Aster DM Healthcare
plans to invest up to Dhs500 million
($136) in the GCC by 2017. The
group is planning to add 300
pharmacies, 50 medical centres and
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HCN news
20 Medcare Hospitals, its premium
hospital arm.
This plan will expand Aster’s hold in
the UAE whilst also targeting Oman,
Qatar, Bahrain and Jordan.
The group is capitalising on recent
growth in the GCC healthcare market
spurred on by the introduction of
mandatory health insurance. It has
invested $100 million in 2014
inclusive of launching a new brand
called Access, which targets the
lower income population in the UAE.
Aster is currently constructing a $300
million project called Aster Medicity
in Kerala, India, which will have
nearly 700 beds in what they call a
‘world class quaternary care centre’.
Last year Aster revealed plans to
launch and initial public offering in
2016, no further details have been
released but it is speculated that the
group will look at listing in London,
Dubai or India.
Saudi’s Dr Soliman to
invest $272.2m in Dubai
Dr Soliman Fakeeh Hospital (DSFH)
of Saudi Arabia will invest Dh1
billion ($272.2m) in the development
of a medical facility offering robotic
surgery and a university in Dubai
spread over 150,000 square meters.
The Fakeeh Academic Medical
Center (FAMC) is due to be
completed in 2019 and is located in
Dubai free-zone, Silicon Oasis.
The 300-bed facility will offer
robotics surgery and feature an
automated medication dispensing
system.
The hospital will also include five
centers of excellence that specialise
in diabetes and endocrinology,
muscles, bones and joints, emergency
medicine, pulmonary medicine and
cardiology.
There will also be a university
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+ February 2015
teaching hospital set up as part of the
project. Fakeeh Medical University
will teach in fields such as medicine,
nursing,
laboratory
sciences,
radiology, physiotherapy, dentistry,
clinical pharmacy and health policy
and management.
Saudi investors spend
$80m on Egyptian
hospital
Saudi Arabia will invest $80m into an
Egyptian hospital project. The
chairman of the Saudi-Egyptian
Businessman Association (SEBA),
Sheikh Mohammed Al-Rajhi, stated
an official announcement would be
made on 31 January.
The hospital was described as “the
largest medical project” in the
statement.
So far, however, it has only been
announced that the project will be a
100 room medical hospital.
Egypt has benefited from over $5bn
dollars of investment, loans and aid
from Saudi Arabia since the
overthrow of Mohamed Morsi in
2013.
Israel
Israel opens up public
health to private
investors
Israel has launched a revolutionary
programme to finance public health
ventures with private capital. New
legislation will allow private
investors to purchase special bonds
dedicated to public health projects if
passed.
National Economic Council.
The government hopes to raise $2.5m
to finance the stroke programme in its
first fundraising round. If successful,
the government will commit an equal
sum.
Indonesia
Indonedia’s PT Siloam
Hospitals to open 12 new
hospitals
Indonesia’s largest hospital group, PT
Siloam Hospitals, says it will open 12
new hospitals in 2015.
It currently operates 16 hospitals in
12 cities, with over 3,700 beds,
serving over 2m patients.
The company plans to add 4 to 5 new
hospitals per year, aiming to reach 40
hospitals across 30 cities by 2017,
with a bed capacity of 10,000 beds.
It claims it can reach 12m patients in
the same year. In 2015, it allocated
$140m for capital expenditure.
In a filling to the Indonesian stock
exchange, it said its profits for 2015
are expected to rise to $289m, up
from $194m in 2014.
Meanwhile, Safira Prima Utama and
Kalimaya Pundi Bumi, two units of
the Lippo Group, have sold US$90m
worth of shares in Siloam Hospitals.
The Lippo Group, a major property
developer in Indonesia, now owns a
70% stake in Siloam Hospitals.
Siloam Hospitals’ share price now
floats at $0.962, dropping from $1.05
last Friday.
The first two programmes to benefit
will be a diabetes prevention
programme promoted by Clalit
Health, and a stroke patients’
rehabilitation programme, promoted
by the Ministry of Health, the
National Insurance Institute and the
HCN interview
Dr Ian Clarke, CEO, International Medical Group - Uganda
International Medical Group (IMG) is the biggest provider of private healthcare in Uganda offering primary, secondary and
tertiary care through its international hospital in Kampala and network of clinics, as well as medical insurance. We spoke
to founder and CEO, Dr Ian Clarke about the group and issues of staff retention in the developing world.
HCN: Can you explain the structure of IMG?
IC: IMG is basically the name of the holding group that
our related companies belong to. Our main company
within IMG is the International Hospital Kampala (IHK)
– it’s a 100 bed secondary and tertiary care hospital. Then
we have around 17 primary care clinics – some are
standalone, some are in schools and factories – which are
part of International Medical Centres (IMC). Then we
have IAA Healthcare, a medical insurance provider and
IHSU, the International Health Sciences University and a
small
pharma
distribution
company,
IMG
pharmaceuticals. We also have a charitable arm, called
the International Medical Foundation.
HCN: Who is your target patient?
IC: There’s quite of small pool that we work with. There
are 34m people in Uganda but only 1m in the formal
sector. We’re not geared towards the informal sector. We
are looking to provide healthcare to those that can pay –
the corporate middle class.
HCN: How did IMG come about?
IC: I came to Uganda nearly 25 years ago working for a
faith-based charity hospital. I wanted to move away from
being dependent on donations, so I started up a for-profit
clinic.
HCN: How did the group grow?
IC: Well, I started a small clinic but quickly realised that
because healthcare in the Developing World is largely
cash-based, that income from patients was almost
seasonal. For example, when it was time for school fees
to be paid, there would be a lot less patients coming in!
So I decided to base the clinic on a HMO structure,
loosely based on the UK NHS model, and began working
with companies who needed to provide healthcare for
their staff out of a pre-existing budget. I started working
with the US embassy and moved on to large organisations
and NGOs that needed staff cover.
Once I had grown the primary care facilities, we built the
IHK.
HCN: Who are your investors?
IC: For our hospital, clinics, pharma company and
insurance groups, private equity house The Kibo Fund
has a 40% stake.
HCN: We’ve heard a lot about staff retention problems,
especially in healthcare, in the developing world. You
seem to be bucking this trend with high rates of local
doctors. How have you done this?
IC: We work with a lot of doctors who are coming out of
their internships and who have worked with the British
system. They work with us for two to four years before
going off to do a specialist qualification, then they’ll
come back and work for us.
Often we sponsor our doctors whilst they are training and
they work for us part-time.
We’re a corporate hospital in the sense that we’re not a
mission hospital trying to provide care on the cheap. My
aim in moving away from a faith-based organisation was
to provide a quality service to Ugandans who pay for their
healthcare, and to build capacity amongst Uganda’s
medical professionals.
HCN: What about doctors moving away to the Gulf or the
Western world, where they can be paid over double what
they could be paid in Uganda?
IC: Staff retention is an issue, especially when it comes to
young medical graduates leaving. There are so many
doctors from the Third World who are basically
subsidising healthcare in places like Canada and
Australia.
But a lot of the crying over doctors in the Developing
World leaving to the West are just crocodile tears from
various governments If the government or private sector
does not set up good facilities where doctors can practice
their specialities, then they’ll leave.
Because we have the highest quality facilities in Uganda,
doctors want to stay with us. They might be getting paid
less than they would in the states, but relatively speaking,
they’re well off. If you look at this as well as the social
aspect of life in Uganda and the weather, you can see why
they don’t leave.
February 2015
+
21
HCN interview
HCN: How many doctors do you have working with you?
IC: We’ve got about 350 staff working for in IHK and
about 150 in the clinics. All together, there are about 800
members of staff on our payroll.
HCN: Do you work alongside the government when it
comes to staff training?
IC: We have had some interactions with the government
– there was a Ugandan doctor, who after returning from
doing a PhD in Canada, came back to work for a
government hospital in its ICU unit, but it just wasn’t up
to scratch. He set up an agreement between us and the
government hospital.
We provided better quality ICU capabilities, he provided
and trained up staff and gave patients 24-hour cover. ICU
outcomes and occupancy went up massively.
HCN: What about IAA Healthcare, your insurance arm?
IC: We started IAA Healthcare as a simple referral track
so that we always had a volume of patients. Now, it
provides around 40% of IMG’s total income. It’s a good
fall back position.
the day and I don’t think it really makes a difference
what a provider is. Non profit organisations are often
faith based, whilst NGOs are supported by donations
from big aid groups like the UK’s DFID and USAID.
Often, the latter get told just to focus on one specific
health problem, like malaria.
These non-facility NGOs make a contribution to national
healthcare and they are what they are.
Faith-based not-for-profits also have to balance the
books so they’ll either get subsidies from abroad or
they’ll charge what they can. This is a bit of a problem in
rural areas – local salaries won’t cover the costs. They’re
often in urban areas because of this.
HCN: What’s next for IMG?
IC: We want to start looking more at diagnostics from our
primary care side.
We’ve also got a few big projects in the pipeline that we
will disclose in the next few weeks.
HCN: Thank you.
HCN: What’s the biggest challenges and mistakes facing
foreign private operators who come into Africa?
IC: Alongside having to make sure they’ve got the right
facilities to retain staff, it’s carving out a niche. There’s
so much talk about disease burden in the Developing
World, but less about the ability of patients to pay for
treatment.
For example, there might be a thousand cases of cancer
but only 5% of these patients will actually be able to
afford treatment. Foreign players need to think long and
hard, before moving in, about who are their target clients
and how will they pay for treatment.
HCN: Have you seen an increase of foreign operators –
for example Indian or Chinese groups – moving into
Africa? Is there any overlap?
IC: Not really. There are Chinese groups, but they usually
just build hospitals for the government and leave. We
haven’t seen any big Indian operators, but there are
Indian groups who come to Uganda fishing for patients
to go to India for treatment. But this isn’t a conflict of
interest, as they’re targeting the very wealthy Ugandans
who would go abroad anyway. They’re not our target
patients.
HCN: What are your thoughts on for-profit and not-forprofit healthcare providers in the developing world?
IC: Sustainability is what it comes down to at the end of
22
+ February 2015
Dr Ian Clarke, International Medical Group
HCN blogs
concentration of power in the hospitals market. The Big
Three has 85% already.
This raises the question: Could a fourth group take
advantage of their difficulties and capture a considerable
share of the market?
Some people see it as a natural development. A larger
group would have substantial advantages in negotiations
with insurers, a more extensive national coverage and
benefits in purchasing. Medtech costs, for example, have
not been helped by a depreciating currency.
Max Hotopf, Editor,
HEALTHCARE
BUSINESS INTERNATIONAL
South Africa: 3+1?
With hospital group Netcare announcing its largest ever
capital increase this week, you could be forgiven for
believing that all is well in Africa’s largest healthcare
market.
It will be investing $170 million in the country in 2015 and
plans to open 510 new hospital beds. Life told us it hopes
to open 240 beds. Mediclinic is opening a new hospital in
Gauteng with 176 beds, as well as upgrading its existing
Emfuleni hospital.
The message? The Big Three are still growing and
expect to do so for the foreseeable future.
But regulators are not making it easy.
Acquisitions are almost out of the question. Life is trying
to buy the Lowveld Hospital in Nelspruit, but the
Competition Commission rejected the initial approach
and it has now gone to appeal.
The Big Three face danger. In this month’s South Africa
feature we look at the potential impact of the national
health insurance, changes to the PMI market and an
enquiry by the Competition Commission.
Investors tell us they are worried about the rhetoric from
the left wing of the African National Congress. Under
these circumstances it seems unlikely that the
government would be happy to see a further
A number of the smaller hospital groups and
independent hospitals are already members of the
National Hospital Network (NHN), an umbrella group
that promotes their competitiveness and provides
collective bargaining. Its main role is to negotiate tariffs
with PMIs for its 114 registered private healthcare
providers. Securing patients and negotiating network
rates is not easy. Getting on an insurer’s list of DSPs
(Designated Service Providers) is crucial.
Discovery, for example, only pays non-DSP providers
80% of their standard rate. The Big Three together
provide insurers with national coverage.
So far the smaller hospitals have been restricted to niche
markets.
Clinix Health Group, for example, has an existing focus
on the low-middle income bracket and has deliberately
placed its hospitals close to South Africa’s poorer
townships. It may be ideally placed to take advantage of
a growing black middle class. A merger with Lenmed,
another mid-range group with seven hospitals, would
create a group with real weight.
Lenmed stipulates in its annual report that it “operates in
only two provinces of South Africa and would benefit
from expanding its footprint into additional provinces to
be recognised as a national operator”.
A number of barriers prevent operators from
differentiating on price.
Hospitals cannot employ doctors so they have to
compete to offer them the best facilities. Over 90% of
patients are insured and usually have a choice of
hospitals; they have no incentive to pick the budget
option. Insurance packages also have to adhere to
expensive PMBs preventing cheap packages. This
makes it difficult to attract a different clientele. The small
February 2015
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23
HCN blogs
hospitals are therefore forever drawn into the orbit of
The Big Three.
Lenmed believes “the medical aid tariffs and
arrangements in respect of DSP are unfavourable to
smaller hospital groups, despite the intervention of
NHN”. Smaller players will be hoping the competition
commission takes aim at these “unfavourable”
arrangements. In the meantime, they face a dilemma.
Stick: Focus on their niche markets and avoid
competition with big groups.
Or twist: Diversify and grow and seek to become a
national player.
In our survey we found surprisingly little evidence of new
players coming up with cheap private healthcare for the
masses. This is strange given that there are nearly 50m
people reliant on the under-performing public sector.
dozen African and Asian countries. Contrast that to the
big European labs. Outside of the Middle East, their
presence is limited to Unilabs, which has a small
operation in Peru.
Cercone reckons that the Chinese will swiftly follow the
Indian example.
“At the moment they are still pouring concrete, the
Chinese have only started to learn how to manage
hospitals in the last five years, but that will change soon.”
Dangerous consultants
Few things are more dangerous for the healthcare
systems of Developing Countries than a PFI consultant.
Suited and booted, we are told they often impress
politicians and policymakers.
If this is how the NHS in the United Kingdom funds
hospital construction then why not follow its example?
South to south will deliver
Healthcare services in markets such as Africa are likely
to be delivered by Indian and Chinese companies, not
Europeans and Americans. Here’s why.
It would be easy to assume that it will be the large
Western international hospital chains and lab groups
who will deliver healthcare to the rest of the world.
But apart from a few specialist niche markets such as
dialysis and medicalised homecare, this is simply not
going to happen.
That partly reflects the much higher costs that Western
operators are used to incurring.
James Cercone at consultancy Sanigest says Indian and
Chinese operators often have access to much cheaper
drugs and medtech. He points to an Indian
ophthalmologist in Rwanda who can buy lenses for $30.
These cost $300-400 in Europe.
And we can already see this happening.
Apart from Ramsay, which is in Indonesia and, soon,
China, it is hard to think of a for-profit Western hospital
operator that is active in the Developing world.
There are several good answers to that one.
Starting with the obvious point that PFI has proved
extremely costly. Why should a sovereign state borrow
from private investors if it can raise the money directly
for a fraction of the sum on the bond market?
And there are plenty of other problems with the model.
Not least the fact that any changes to a PFI-financed
hospital structure are extremely expensive.
Buyers are essentially having to say they know what
their hospitals should look like in 20-30 years time.
And if the UK can not control PFI properly what happens
in countries with far lower standards of governance?
What is needed is not consultants peddling poor First
World solutions, people who are selling transactions, but
rather consultants who understand local healthcare
needs and how to meet them.
That sounds so elementary as to be barely worth stating.
Yet we are told again and again that only a few dozen
consultants worldwide can do this.
And that they do not work for the Big Four or McKinsey.
Yet the big India operators are already active in the Gulf
and are hard at work recruiting patients in Africa.
Indian lab chain Metropolis is already present in nearly a
24
+ February 2015
HCN interview
Aschkan Abdul-Malek, founder, AlemHealth
Dubai-based AlemHealth is bringing teleradiology and telemedicine to the developing world via a global network of
doctors linked up to private primary and secondary facilities in the Middle East. It plans to move into Asia and Africa within
the next few months. We spoke to founder Aschkan Abdul-Malek about its business model.
HCN: How did AlemHealth come about?
AAM: We saw a gap between what healthcare and
diagnostic tools exist in the developing world and what is
available – and that gap is being filled, at the moment, by
medical tourism. There are people in the developing
world who will travel abroad just for diagnostic services.
HCN: Where are you at the moment?
AAM: We’ve just launched in Afghanistan and will soon
be in Myanmar, Vietnam, Sub-Saharan Africa, Iraq and
Yemen. We target places where there is a serious lack of
diagnostic specialists.
HCN: Who has invested in you?
AAM: At the moment, we’re self-funded with a few
private investors.
HCN: How exactly does AlemHealth work?
AAM: At the moment, a patient will go to their local
hospital and see an advert from us on the wall offering
them foreign diagnostics. They’ll pay a premium for our
services – it can be as little as $7 for an x-ray done by an
Indian doctor or $60-80 for a sub-speciality done by a US
doctor. The imaging happens as normal in the hospital,
but then is sent via our proprietary IT platform and cloudbased network to one of our doctors.
HCN: How long does it take?
AAM: It can be done in as little as 90 minutes. The
maximum waiting time at the moment is three hours.
Because we’ve got doctors all over the world, we are
available 24/7.
HCN: Has there been a good response in Kabul?
AAM: We started working on our platform in May, and
formally entered the market early December. We’ve seen
a big uptick in our services in the last few weeks.
We’ve treated around 100 patients so far. It all relies on
patient education and word of mouth.
HCN: Are you targeting the urban middle class patient?
AAM: Although that might be the demographic that goes
to the higher end of our services, they are not our target
patient.
In Afghanistan and all over the developing world, people
will borrow money from their neighbours, community,
family just to be able to pay for their health.
As there’s no insurance in the majority of the emerging
markets, patients pay with cash and they are looking for
the best possible treatment. You’d be surprised how much
people are willing to pay.
HCN:What about bringing telemedicine to underserved
rural areas?
AAM: At the moment, we’re just in Kabul but we’ve been
seeing patients from all over. Being in a big city means
you attract everyone who is in a province that’s a day’s
drive from Kabul.
There’s a misunderstanding about healthcare in the
developing world, that it must be deployed in rural
settings. It’s so impractical when it comes to
diganostics/imaging – a CT scan just won’t get used if it's
in the middle of nowhere. People come to the city for
care, just as they would in the US or UK, and that
includes diagnostic imaging.
HCN: Do you only work with private hospitals?
AAM: For now, yes, the procurement and payment cycles
are much quicker, and implementation far easier. It’s all
relative though – in Afghanistan, a big private hospital is
one with 50 beds.
HCN: Where are the doctors you are working with?
AAM: At the moment, we have 300 doctors in our
network in India and the US. In the US, we work with
Onrad, a teleradiology group that has about 130
specialists on its roster.
In India, we work with diagnosticians from Apollo
Hospitals.
HCN: What’s in it for the doctors?
AAM: Well firstly, they feel like they’re doing something
good and helping patients who would otherwise not have
February 2015
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25
HCN interview
access to any quality healthcare services. Secondly, they
get paid and they get paid quickly. Because this is a cashbased market, they are paid upfront.
The US rules on doctors not being able to operate across
US federal state lines means that there can be a lot of idle
radiologists! We can bypass that and use their services as
well.
HCN: What got you interested in this area in the first
place?
AAM: The level of diagnostics and imaging in the
developing world can be terrible. We’ve heard about
biopsy samples being driven for 10 hours in a hot car
over borders. We’ve heard of patients getting a faulty
diagnosis from a local doctor and travelling abroad for
treatment even though there’s a low chance of them
arriving alive.
We could have done so much more for these sorts of
cases if telemedicine was used.
HCN: How are local attitudes to telemedicine? Is there a
mistrust of the technology?
AAM: There’s a lack of trust in medicine in general. In
the US or the UK, if you went to the doctor you would
generally put about 99% of your trust in them.
In the developing world, doctors are still trusted for care
but often a patient will hear a diagnosis and think it’s
only about two-thirds correct.
too.
HCN: How long does it take to set up a partnership with
a private hospital?
AAM: One of AlemHealth’s benefits is that we are fast
and flexible – we’ll be up and running in Myanmar and
Vietnam in the next six weeks. Private hospitals in these
places are looking to partner, so the acquisition cycle is
short – six to eight weeks, tops.
HCN: Is the future bright for telemedicine in the
developing world?
AAM: Yes and no. There’s a big payment issue in the
developing markets, which many groups haven’t
properly resolved.
How can you set up consumer telemedicine in
Afghanistan if no one has a credit card? People still get
their healthcare through hospitals and they will do so for
the foreseeable future. We want the developing world to
leapfrog using tech from the developed world, while
weeding out the bad bits of both.
There’s real opportunity here to reinvent the practice of
medicine and build it on a solid foundation, and we’re
seeing that now.
HCN: Thank you.
HCN: Why is that?
AAM: In imaging, standards of care are a mess. There
might be imaging services, but the doctor will often do
the readings himself. Because of the lack of specialists
and some bad actors, patients have been duped from time
to time and have a reason to mistrust.
We’re finding we’re teaching technicians the most basic
stuff – don’t send images via Facebook, for example –
but they’re very receptive to the training.
HCN: You said you’re going into Asia and Africa. Who
will you work with out there?
AAM: We’re still looking for the right partners there.
Similar to our existing partners, we want to work with
doctors from top-tier healthcare brands like IHH,
because they are known and trusted.
In Sub-Saharan Africa, brands like South Africa’s
Mediclinic are very strong. Because patients travel
abroad to be treated by these trusted brands, if they can
be treated by a high quality doctor from their brand of
choice domestically, we’re streamlining medical tourism
26
+ February 2015
Aschkan Abdul-Malek, AlemHealth
HCN feature
Insurers revisit
vertical integration
model in search for
greater control and
profits
Private healthcare insurers have deep pockets and powerful parents. In Brazil, Poland, Chile, Spain, Georgia and Portugal
they have been buying up hospital chains and other service providers. So will this trend spread internationally? Helen
Burggraf reports
The recent battle to acquire a controlling stake in Espírito
Santo Saúde, the Portuguese hospital operator owned by
interests connected to the beleaguered Banco Espírito
Santo group, was closely watched by healthcare industry
officials and policymakers around the world.
For many, the most striking feature of the battle was that it
pitted America’s largest managed healthcare provider,
UnitedHealth Group – effectively, a type of health insurer –
against Fosun, the Shanghai-based parent of Portugal’s
largest health insurer, Fidelidade. (Fosun won the battle,
with a €5.01 ($US6.42) a share bid.)
Fidelidade had been acquired just months before for €1bn
by Fosun, one of China’s fastest-growing conglomerates, in
what was widely seen as a sign that it wanted to become a
major player in the international healthcare sector.
Other countries have seen similar integration. Take Bupa’s
acquisitions in Poland, Chile and Hong Kong. Or the way
insurers own entire hospital chains in Brazil.
New variations on a theme
The business model whereby insurance companies own
healthcare facilities that their plan-holders can use is almost
as old as the idea of health insurance. It fell out of favour,
experts note, when patients and regulators began to
question whether such arrangements might result in lessthan-optimal patient care.
Explains Jan Willem Kuenen, an Amsterdam-based senior
partner of BCG and global sector leader in health insurance
at the consultancy: “Historically, when the two were
combined, the provider easily become the dominant party,
where the insurer was seen as a ‘distribution channel’ to
attract patients for the hospital. And as a result, some found
they ended up with provider-centred, rather than patientcentred care.”
Perception of the “inherent strategic conflict” was cited as
recently as 2008 by the then-retiring chief executive of
Bupa to explain why it sold off its UK hospital chain.
Ironically, though, today Bupa has the largest footprint of
any insurer in the hospital-, clinic- and care home-owning
business, as it expands aggressively outside the UK, with
acquisitions like Lux Med, the major Polish healthcare
provider it bought in 2013; Quality HealthCare Medical
Services in Hong Kong, also in 2013; and Cruz Blanca
Salud, a Chilean healthcare provider and insurer it bought
earlier this year.
Its purchase of three New Zealand care homes from the
Oceania Group in 2013 gave it a total of 52 such facilities
in the country, where it says it is the market leader, as
measured both by bed numbers and geographical coverage.
We have similar moves elsewhere. Vast swathes of the
Brazilian private and not for profit hospital sector are
owned by insurers and HMOs. US Medicaid specialist
Centene recently bought half of Ribera Salud, a Spanish
group which runs over half a dozen operator-led PPPs in
Spain.
Rules limiting foreign ownership of businesses have, of
course, long been another formidable barrier to insurance
February 2015
+
27
HCN feature
Insurance
OWNER
(and % of ownership if
less than 100)
examples of insurers owning healthcare providers
HOSPITAL
OR MEDICAL GROUP
YEAR OF
ACQUISITION /
PRICE PAID
DETAILS
UnitedHealth
Group Inc, US
managed care
provider (90%)
Amil Group (Brazil’s largest health insurer
and hospital operator); at time of deal,
owned 22 hospitals and 50 clinics
2012
$4.9bn
Brazil’s healthcare market is growing faster than that of the
US, thanks to a growing middle class
Bupa
Cromwell Hospital, Kensington, West
London
2008
Hospital was opened in 1981 as a state-of-the-art private
facility aimed at an international market
Bupa
Bupa Care Homes chain in UK
Acquired over
time
Bupa runs some 300 care homes in the UK, with 18,000
residents
Bupa
Lux Med (Poland’s largest private healthcare
operator); at the time of acquisition had five
small hospitals, 161 outpatient facilities and
approx. 1,600 subcontracted centres
2013
€400 million
(£325 million)
Bupa’s first venture into Eastern Europe was seen as part of
an ambitious strategy of int’l expansion under then-new CEO
Stuart Fletcher
Bupa
Sanitas, Spain’s largest private healthcare
organization (offers medical insurance as
well as running its own hospitals and clinics)
1989
Bupa
(56%)
Cruz Blanca Salud, Chile,both an insurer and
healthcare provider (2nd largest insurer by
turnover; largest provider of private
outpatient services)
2014
(£205 million)
Bupa’s first venture in Chile
Bupa
Quality HealthCare, Hong Kong
2013
US$355m
Quality HealthCare is Hong Kong’s largest private healthcare
chain; the two companies ‘operate independently’
Centene (US
insurance
company) (50%)
Ribera Salud SA, Valencia-based healthcare
provider
2014
Avante Hospital
Management
Group, Georgia,
and other
Georgia facilities
JSCI Aldagi BCI, the Bank of Georgia’s
insurance subsidiary (healthcare operation
now rebranded as Evex Medical Corp)
2014
Aldagi became a major player in Georgia after the country’s
government began a programme of privatisation in 2006.
After the 2012 election, the new government shifted its
priority to government-assisted universal healthcare,
although three major insurance companies, including Aldagi,
continue to play a major role in the country’s healthcare
provision. (The other two are GPI Holding’s Vienna Insurance
Group, and Aversi, the pharmaceutical giant which owns the
Alpha insurance group).
Bupa
Bupa Care Services New Zealand
(Acquired over
time)
The purchase of three care homes from the Oceana Group in
2013 brought the total number of New Zealand facilities for
the elderly to 52
companies (and others) looking to buy into many key
markets, including India, China and the United Arab
Emirates.
Now, though, healthcare industry experts say, the vertical
integration model is increasingly being revisited,
particularly in key, fast-growing emerging market countries
(as Bupa’s recent acquisition spree suggests) – for a
number of reasons.
28
+ February 2015
Insurers are getting closer to
healthcare provision
Firstly, insurers are much more involved in care delivery. In
the US, home of Unitedhealth, Cigna, Aetna and other
giants, UBS managing director Robert DiGia says a
“confluence of events” is driving a fundamental
restructuring of the health insurance industry, in the
direction of “managed care” and away from the traditional
HCN feature
Insurance
OWNER
examples of insurers that exited running their own hospitals
HOSPITAL
OR MEDICAL GROUP
YEAR OF
DISPOSAL /
PRICE PAID
DETAILS
Bupa
26 UK hospitals, to private equity group
Cinven, which took the group public in July
2014 in an IPO, as Spire Healthcare.
2007
£1.4bn
Bupa’s then-CEO said the hospitals were sold because there
had been “an inherent strategic conflict” in owning both
hospitals and an insurance business
JSCI Insurance
Company Aldagi,
the Bank of
Georgia’s
insurance
subsidiary
My Family Clinic
2014
not disposed
of, but
separated
from and rebranded
JSCI Insurance Company Aldagi became a major player in
Georgia after the country’s government began a programme
of privatisation in 2006. After the 2012 election, the new
government shifted its priority to government-assisted
universal healthcare, although three major insurance
companies, including Aldagi, continue to play a major role in
the country’s healthcare provision. On 1 Aug 2014, Bank of
Georgia Holdings announced it was splitting Aldagi into two
separate business units, and re-branding the healthcare
portion as Evex Medical Corp
“fee for service” model.
Under managed care systems, the idea of insurers and other
payors having links with healthcare providers is seen as an
option, as conflict of interest concerns take a back seat to
financial considerations.
This shift is having an ancillary impact outside of the US,
DiGia – who is UBS’s global head of healthcare investment
banking – added, as companies in mature markets like the
US seek growth in emerging markets, and in so doing,
bring their recently-acquired knowledge of successful
healthcare funding and management models with them.
“In the traditional fee-for-service environment in
healthcare, physicians would always get paid, whether they
did something right, wrong, once or 10 times; they just got
paid,” he notes. “But they didn’t get paid for taking care of
the patient.
“Now the world is moving towards getting value of what a
health plan pays for; and the risk is being shifted to the
healthcare providers.”
Like DiGia, Jason Sadler, president of International
Markets for Cigna, one of the largest US insurers and also
among the most active internationally, reports seeing a
“fundamental reshaping of virtually every aspect of how
we do business”. The key driver, he believes, is dramatic
changes in global demographics.
Once demographically-youthful countries, like China, are
seeing their populations age, Sadler explains, at the same
time their middle classes are expanding.
“Chronic disease levels are rising, and affordability of
health care continues to add pressure [on people in many
markets around the world].”
At the same time, technology has made consumers
increasingly demanding in their expectations, with the
result that when highly-pressurised national healthcare
systems fail to deliver, “consumers look for additional
solutions”, Sadler adds.
He stresses that the issues are “diverse” across the various
international markets, but that a recurring theme is the need
for collaboration – whether through vertical integration or
other forms of “collaborative opportunities and
partnerships”, that are able to offer the best value for
patients in each market.
A shortcut to higher standard
Secondly the shear shortages of top quality care are leading
many governments to look more favourably on for-profit
hospitals, even foreign-owned chains.
Such hospitals are increasingly seen less as an evil and
more as a way of introducing competition and raising
standards.
Concerns about who actually owns the facilities offering
reasonably high quality care – for the time being, at least –
are taking a back seat to the political imperative of having
such care available to the growing middle classes who
increasingly expect it, by governments keen to widen
access to healthcare while containing costs.
Thus it is that foreign investors find themselves being
actively wooed by countries keen to kick-start their
inadequate healthcare systems, rather than being
discouraged and told to take their money elsewhere.
For insurance companies in mature Western markets, this
February 2015
+
29
HCN feature
Insurance
HEALTH INSURER
major insurers with healthcare provider joint ventures
HEALTHCARE PROVIDER
YEAR JV
LAUNCHED
DETAILS
Munich Health
Apollo Hospitals
2007
Apollo Hospitals is said to be Asia’s largest healthcare group;
the Indian JV seeks to leverage the expertise of both partners
“for the benefit of its customers”
Bupa (26%)
Max India Ltd,
Parent of Max Healthcare, India
2008
Max Bupa Health Insurance Co is a 74:26 joint venture
launched in 2008. Max India has a number of joint ventures
with other providers in insurance and healthcare, including
South Africa’s Life Healthcare
not only represents an opportunity to achieve geographic,
currency and business sector diversification, but a means of
having some control over the quality and pricing of the
healthcare being delivered to their health insurance clients
in markets that, until now, have often have been
troublesome, experts say.
One source told HCN that ownership of the providers is also
seen as a way, in certain markets, of helping to ensure that
costs are not just controlled but also ring-fenced from the
potential cost-distorting effects of local officials or
individuals demanding bribes.
An example of a government initiative aimed at inviting
more foreign investment was the announcement in July by
India’s newly-elected announced that it planned to nearly
double the proportion of foreign investment allowed into its
$60bn insurance industry to 49% from its current level of
26%, in an effort to give its struggling insurance sector a
needed boost.
If the increase is approved, Cigna Corp, the US-based
health insurer, would likely raise its stake in its India joint
venture, Cigna TTK, which it launched in 2011, chief
executive David Cordani told India’s Economic Times a
few weeks later.
China to open seven markets
China, meanwhile, announced, also in July 2014, that it
would open up its healthcare markets in seven mainland
cities and provinces, in what one report said was part of a
pilot project aimed at “improving services and introducing
more competition into the tightly regulated sector”.
The Chinese initiative wasn’t aimed at foreign insurance
companies specifically, but it revealed the government’s
current thinking with respect to private sector participation
in healthcare provision.
30
+ February 2015
In an editorial endorsement of the plan, the South China
Morning Post went noted that “a radical initiative is
needed, if healthcare is to catch up with rising
expectations”, and that Beijing had “taken a step in the
right direction” with its plan to allow fully foreign-funded
hospitals into certain of its markets.
Vertical Integration can go both ways
Thirdly, it is worth noting that vertical integration can go
both ways.
Raffles Medical Group – the Singapore Stock Exchangelisted private healthcare services network – launched a
health insurance subsidiary in 2005. Most of the company’s
facilities are in Singapore, although it has a presence in
Hong Kong and Shanghai, and representative offices
throughout Asia.
Raffles Health Insurance, the company explains, provides
its policy owners and members with “fully integrated and
coordinated healthcare”, while also enabling its corporate
clients “to provide a seamless and integrated healthcare
experience to their employees”.
An international private health plan is also on offer, through
a partnership with Bupa, which, Raffles Health Insurance
literature explains, “caters to the needs of individuals and
corporates of Singapore’s international business
community”.
Raffles executives declined to comment on either the
advantages of being both the payor for, and the provider of,
healthcare; or whether there could be potential concerns
among their insurance clients about a possible conflict of
interest, when it came to the healthcare providers they
would be expected to use.
So will we see more insurers moving into the market?
HCN feature
James McGrigor, an expert on worldwide healthcare
insurance thinks the answer is probably no.
McGrigor says that conflicts between the insurer business
model and hospitals still remain. “Insurers should be good
at getting the right price and at administration. If I own my
own hospitals, this distorts this, as I will tend to favour
them.”
He says that the history of US insurers buying hospital
groups abroad has not been a happy one. Cigna had big
problems with Rede D’Or in Brazil. Investment analysts
have told HCN that UnitedHealth has struggled with Amil,
the integrated HMO which owns a large hospital chain
which it acquired in 2012.
Other sources say that large US insurers have swung back
to the USA as Obamacare has opened up new markets.
What then of the vertical integrators Bupa and Fosun?
McGrigor thinks Fosun is best seen as a conglomerate,
rather than as an insurer. As for Bupa, he argues that it has
bought into healthcare providers precisely because it does
not chose to define itself as an insurer.
He says that big generalist insurers are typically
uninterested in consolidation. “Axa is not that keen on
owning facilities. Axa and Allianz are conglomerates built
around life and motor. They have come late to healthcare,
which is seen as a cross-sell opportunity, but is much harder
to administer and much less profitable than life”.
The Holy Grail model
Interviews with a cross-section of healthcare experts found
many attributing the re-emergence of variations on the
vertical integration model to the global healthcare
industry’s continuing struggle to find a “Holy Grail
business model” that would enable both the payor and
healthcare service provider to make a sufficient profit – or,
in the case of publicly-funded entities, to be sufficiently
cheap – while at the same time delivering the best patient
care possible.
“It’s a tough balance to get right,” BCG’s Kuenen says,
echoing other experts in the industry. “The perfect
healthcare business model has yet to be developed.”
Where some systems have come close, such as the Kaiser
Permanente model in the US state of California, they are
often difficult to replicate elsewhere, Kuenen and others
note, typically because the specific market conditions that
enabled them to become established in a particular region
initially don’t exist elsewhere.
“When you have an insurance element, there will always be
an incentive, when somebody is still healthy, to provide
insurance cover at as low a premium as possible, but the
moment that person becomes a patient, they will want to
have the best possible healthcare, with no expense spared,”
Kuenen says.
“That makes [the funding model] difficult to construct. And
then there is also a feeling that the doctor should be trusted
implicitly on the matter of the patient’s care, and not be
asked to take the costs into account, because he should be
focused on the quality of care only.
“If you really wanted to be smart, and make the right tradeoffs as to where more money or less should be spent, you
really need to give the doctor some responsibility [with
respect to] the costs. But patients don’t really want that.
“So what you end up with is many almost opposite forces
at work, and no clear and obvious answer.
“In the end, it comes down to a matter of trust: trust in the
insurer, that they will do all they can to keep premiums at
acceptable levels, and trust in the provider, that they will
give you all the care you need when you get ill, almost
regardless of the costs. The real challenge is to continue to
be able to claim both, even while you are an integrated
group.
“This requires time to build up trust, and a reputation, the
way a company like Kaiser Permanente has done.
However, where new [vertically integrated] groups are
being formed, this will be a lot harder, and requires a lot of
attention.”
Georgia: When insurance goes wrong
One country that has had some experience with insurance
company-owned healthcare facilities is Georgia, which
began a major privatisation of its hospital sector in 2006. In
an effort to get out of the hospital-running business itself,
Georgia’s government initiated a land-swap programme
with several major investors – giving them old hospital
facilities, often sitting on valuable land, in return for their
promise to build new, replacement models.
By 2012, according to a Transparency International
Georgia report on the country’s hospital sector, more than
February 2015
+
31
HCN feature
Insurance
three payment types explained
Fee-for-service (FFS) – This method is preferred by providers (hospitals and medical practitioners alike) because they can charge
for everything they do (potentially), regardless of the expense and/or outcome for the patient (and/or funder). So the criticism around
this reimbursement model is that it potentially encourages over-servicing of patients, either because of a revenue/profit motive, or
simply because there is no focus on cost / quality).
Capitated model – Under the capitated model, payors, such as insurance companies, typically pay a fixed amount for a specific
procedure or treatment package, such as a hip replacement. So the onus is on the provider to carry out the procedure or treatment
for this amount or less – with the incentive that if costs come in well below the agreed-upon amount, the difference is a profit for
them. The downside here is that providers may under-service patients, in order to build a profit into each treatment.
Managed care models – Managed care is an insurance-based system that is an extension of the capitated model – which is to say
that it is basically an insurance plan that aims to manage a patient’s health needs, but with the almost implicit aim of preventing ill
health, and thus reducing demand for healthcare services.
Managed care has a number of champions, particularly in the US, and has worked well in some instances there. But some critics
argue that that there is still a built-in incentive to do less than might be best for the patient. For example, in the UK, GPs and dentists
typically get paid a fixed amount per year per patient that they have on their “list”, even though they often don’t see many of the patients
on this list one year to the next – in spite of the fact that they are, in theory at least, they are expected to get in touch with patients they
haven’t seen in a while to ensure that they are okay.
80% of Georgia’s hospital facilities were in the hands of
just three insurance companies (the Bank of Georgia’s JSCI
Aldagi BCI, GPI Holding’s Vienna Group, and
Aversi/Alpha). And according to the NGO, the result was
that doctors and other sources were reporting that financial
concerns were leading to “situations [in which] insurance
companies try to save…money on patients, [while] services
get more expensive for those who are uninsured”.
A Curatio International Foundation report the same year,
however, found that the use of private insurance companies
to achieve the Georgia government’s stated goals of
providing its poorest citizens with healthcare had mixed
results – characterized by a “number of notable
achievements” as well as “shortcomings”.
These inconclusive findings, the Curatio report went on,
were in line with “international experience”: Significant
capital investment in health care infrastructure had been
mobilised, consumers were better informed and
empowered, and private demand for health insurance had
increased; but administrative costs were high, and there
were concerns about how well the healthcare entitlements
of poor and vulnerable individuals were being protected.
“Available evidence regarding the involvement of private
insurance companies as intermediaries in provision of the
universal coverage – from both high and middle income
countries relying on private insurance in covering large
shares of the population – is controversial,” the Curatio
report concluded.
“Expected efficiency gains resulting from competition and
32
+ February 2015
more entrepreneurial approaches brought by the private
actors may be outweighed by relatively high administration
costs and gaps in coverage triggered by the adverse
selection and ‘cream-skimming’ practices – typical
problems of the private insurance market.
“These problems may only be mitigated through
sophisticated regulation in the conditions of the strong
governmental stewardship, which is gradually developing
but is not [yet present] in Georgia.”
Since those reports were published, a new government has
taken power, and taken back many of the healthcare
administration tasks that had been handed to the private
sector generally and, in many cases, the major insurance
companies in particular, according to Levan Jugeli, a
Georgia-based healthcare industry consultant, and former
deputy minister with Georgia’s Ministry of Labor, Health
and Social Affairs.
Now, under the newly-implemented universal health care
system, the Georgian government buys the health services
for needy beneficiaries who do not have private insurance,
via a social purchasing agent that was created for this
purpose.
What this means, Jugeli explains, is that government
bureaucrats are once again controlling certain purse-strings
that, for about six years, had been in the hands of private
insurance companies.
As a result, the number of those privately insured has fallen
to around 400,000, from a pre-2012 election peak of more
than a million.
HCN
HCN feature
Insurance
BCG study finds ‘alternative
models’ can deliver
A major research project carried out by the Boston
Consulting Group largely contradicts the widely-held belief
that patient care inevitably suffers when fee-for-service
healthcare structures are replaced by so-called “managed
care” models.
The BCG research has major implications for insurance
companies around the world, because it suggests that the
days may be numbered for mass use of the traditional feefor-service model, with this type of insurance continuing to
be used primarily only by the wealthier (and healthier)
client groups.
In situations in which incentives are aligned between the
payors (ie, the insurance company) and the providers of the
care, managed care models lead not only to lower costs but
– counter to conventional expectations – to better outcomes
for patients, the BCG study shows.
According to Jan Willem Kuenen, an Amsterdam-based
senior partner and managing director of the Boston
Consulting Group, who was part of the team that carried
out the research, it could also meant that there might be less
automatic resistance to the idea of what he calls “the
ultimate alignment of incentives” – that is, insurance
companies, or so-called payors, actually owning the
hospitals and other treatment facilities used by their
policyholders.
Kuenen stressed, however, that the findings did not mean
that vertically-integrated healthcare models were always fit
for purpose.
Indeed, such models “hold some implicit risks, such as
patients who worry that they may be withheld the care they
need in the hospital, as they believe the payor would be too
short-term focused,” he told HCN.
He also noted that massive capital requirements could be
involved in enabling the healthcare provider to offer
sufficient capacity to serve its patients in high-quality
facilities, which could be a challenge to an insurance
company seeking to run hospitals as an adjunct to its main
business.
by Helen Burggraf
The findings therefore didn’t so much point to a need for
the payor to own the care provider as much as to a need for
the incentives motivating both parties to be “aligned” in
such a way as to create ‘virtual’ integrated models that
deliver high value – that is, better outcomes at a lower cost
– than conventional fee-for-service (FFS) models, Kuenen
explained.
US data used
According to BCG, the US is an ideal place to study the
impact on health outcomes and costs of various healthcare
funding models, because it’s one of the few countries that
employs multiple payer models in parallel, and has done so
for some time.
In conducting their research, Kuenen, along with
colleagues Jon Kaplan, Mike Pykosz and Stefan Larsson,
analysed claims data from 2011 for some 3 million US
Medicare patients.
They found that in three basic, “internationally-accepted
dimensions of health care quality” – single-year-mortality,
recovery from acute episodes of care requiring
hospitalisation, and the sustainability of health over time –
patients who were enrolled in more managed Medicare
Advantage plans offered by private insurers “had better
outcomes than patients participating in Medicare on a
traditional fee-for-service basis”.
“Payers, providers and policymakers worldwide have a lot
to learn from the differences between fee-for-service and
the alternative care-delivery models used in US Medicare
Advantage plans,” the researchers concluded.
Sources:
https://www.bcgperspectives.com/content/articles/health_c
are_payers_providers_alternative_payer_models_show_im
proved_health_care_value/#chapter1
February 2015
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33
HCN interview
James Cercone, President and founder, Sanigest Internacional
No one can rival Cercone’s expertise running and consulting on private healthcare service groups across the Developing
World. In this wide-ranging interview we look at insurance trends, how hospital and diagnostic chains are growing and at
what the combination of information transparency and international hospital chains will look like in a few years time.
HCN: How do you see insurance developing in the
Developing World?
JC: I’d say 90% of countries have or are about to initiate
universal coverage programmes of some kind. In China,
95% now have coverage. In India a couple of states have
rolled it out and the central government has good
intentions. Even Uganda and Rwanda are on this path.
state could pay for more than 30% of that and that was
before the oil price spiked.
What we typically find is that the Ministry of Health
comes up with a plan and the Ministry of Finance says
no.
HCN: Dr Shetty at Narayana reckons that you can
provide surgery cover for just 11 cents a month! Is that
really possible?
HCN: OK, but my impression is that many countries
particularly in Latin America remain statist. There is a
strong socialist strand which believes that the private
sector shouldn’t be involved.
In the Dominican Republic, citizens have up to $75 a
year of drugs. You could easily blow that with some
conditions in 1-2 months. So coverage is thin and a lot of
payments will be out-of-pocket.
JC: Yes, I agree that is a trait in many Latin American
countries, but they know they can’t do everything. And
the private sector is being let in as long as there aren’t
huge barriers to entry. Increasingly in Brazil, India and
China those restrictions on private investor are being
dismantled.
JC: Well there is the law of large numbers, Surgery is a
2,000 to one annual event so yes, it can be had for
surprisingly little. But most of the coverage being
planned is extremely limited by Western standards.
That means there is a massive opportunity for
supplementary insurance. Take the Bahamas. If you want
branded drugs you can pay for an extra supplementary
policy. In many countries you have a formal sector which
is covered by the state and informal or other sectors
covered by mutual insurers.
HCN: And what role do you see private healthcare
playing in the Developing World.?
JC: There is widespread recognition that the state simply
can not do everything. The gap between what needs
doing and what can be done will take at least three
decades for the government to fill, if it ever does. Take
Uttar Pradesh, a very poor state in India with a
population of 200m. We looked at MRI and CT
machines. At the moment there are 10 and they need 600.
Or take Kazakhstan. We did a huge master plan on what
it needs for hospital and primary care services over the
34
next 15 years. The gap was $30bn. There was no way the
+ February 2015
Look at the rules which stop foreign investors buying a
majority stake in hospitals in Brazil for instance.
And at the same time it is clear that the private sector is
willing to step up – there is huge interest in investing in
African healthcare services for instance.
HCN: But aren’t most private healthcare operators only
interested in the new middle classes. They don’t want to
work with the poor.
JC: There is some truth in that but many private
providers are integrated into the public system. There are
all kinds of sorts of informal or ad hoc PPPs if you like,
often set up at the initiative of private providers.
HCN: How do you mean?
JC: Well, in India you might find a diagnostics centre
which has been given to a private provider on the basis
that in exchange for working until 3pm for the public
payor they can then do work for the middle classes for
money.
HCN interview
Land prices in some Indian cities are incredibly high so
the city might give a hospital group a plot worth $20m
in exchange for free services. Or take Kazakhstan. There
in exchange for a central lab facility in a hospital, I know
that 18 local primary centres got a better service at a
reduced price with delivery times cut from three days to
12 hours and a third cheaper.
HCN: But the formal operator-led PPP model where
private providers build and run a hospital for 10-30 years
hasn’t really worked has it?
In Europe this model has suffered as the Right and Left
yo-yo in and out of power. And it hasn't worked in the
Developing World either, has it?
JC: I agree there have been problems but PPPs can work.
I know that because I ran one in Costa Rica for five
years in the early noughties!
The government contracted out primary care services
including lab diagnostics and prenatal and we ran
primary care services for 170,000 people through 15
clinics. We did it for $39 per capita compared to $54 per
capita through the public sector.
We also offered more services – nine guys on
motorbikes delivering medicalised homecare – and we
were open until 8pm, not 4pm. And we still made a 15%
profit margin.
We eventually sold out to a private hospital and today
around a quarter of primary care services in Costa Rica
are delivered like this.
HCN: Yes but formal PPPs have still had a tough ride.
JC: Yes, you are right. Panama stopped several PPPs. In
Chile they were going to run 15 hospitals and the
previous government stopped the process.
Mexico closed seven PPPs under the last administration,
several had hit overwhelming demand which was good
for the government but less good for the operators!
Part of the trouble is PPPs tend to be very badly written
and demand has been underestimated. When we looked
at some Indian PPP contracts some did not even specify
a price! We found an ambulance service where there was
no price per kilometre or even per trip!
And it gets worse as the project becomes more complex.
I’ve seen specialist hospitals where there are no outcome
indicators or patient satisfaction surveys.
So the jury is out on whether the model is broke or
whether it is just a question of the right contracts.
But we do see some interesting innovations. Take the
Gujarati voucher scheme for maternity care. This
literally gave women a cash voucher to spend on
providers. The improvements were dramatic.
HCN: This is a naive question but how bad is healthcare
if you are poor?
JC: It depends on the country but often it is surprisingly
good. Best is probably a country like Turkey, which has
really pumped money into a good NHS system for a
decade. But in Latin America, in Brazil, Costa Rica or
Mexico even if you are poor from a rural area you can
get good treatment in not-for-profits.
In Costa Rica you will get a transplant for free if you
need one.
Rural hospitals in Cambodia or Myanmar offer poor
care. But I’d say across the former USSR that many
hospitals are extremely primitive.
It is very hard to generalise in Africa.
I was impressed by Rwanda because there are a lot of
relatively new facilities in both the private and public
sectors. And the new public hospitals in South Africa are
well-equipped. Lesotho has got PPPs that deliver pretty
good hospitals and outpatient clinics.
HCN: I get the impression that many investors are going
to be from India and China rather than from the
Developed World. Do you agree?
JC: Yes a lot of it will be South to South. India has a big
advantage in that it has a strong medtech and pharma
sector which can deliver products much cheaper than
Western suppliers. Indian service providers have very
February 2015
+
35
HCN interview
efficient supply chains.
For instance, in Rwanda I saw an ophthalmology chain
which could source lenses for $30 that would have cost
€400-600 in the Europe.
One of the problems in Africa is that distributors are
tiered one on top of another, with each taking a cut. In
Rwanda I came across endoscopy equipment which cost
$120,000 because it had gone through several
distributors. The same manufacturer quoted me $22,000
for delivery to India!
I think that if the big Indian groups were to set up in
Africa they would get these low prices.
What is more, there are no restrictions to stop Indians
from coming to Africa building a hospital and staffing it
with Indians for 2-3 years.
for the more expensive operations.
HCN: My very clear impression is that most healthcare
tourism is wealthy people in poor countries with bad
healthcare traveling to rich countries with good
healthcare.
JC: I’d agree. There is a lot of south-south tourism. Take
Bumrungrad Hospital chain in Thailand. It has set up a
referral process in Mongolia.
What we are doing is giving the consumer in, say,
Mongolia a better idea re-pricing. A big Thai hospital
might charge $250 for an MRI when the price in
Bangkok is $150.
HCN: Thank you.
And the Chinese will come. At the moment they are just
building capex projects and they have really only had
healthcare management skills for 3-4 years. But that will
change dramatically and they will be there running and
operating these facilities.
This is already happening with hotel chains.
HCN: As the sector internationalises what does that mean
for the insurer or the patient?
JC: Companies like Gleneagles and Raffles have started
to look at the efficiencies of managing across an entire
network so you build a centre of excellence in Turkey
say for stents and another in Singapore for hip
replacements and by managing across borders they can
manage profits and outcomes. IHH is already looking
hard at this approach.
That will then play through to healthcare insurers who
will say if you do the operation in this country is will cost
$10,000 and if you do it here it will cost $6,000. And
these are the outcomes.
HCN: And you are building a new business in this space?
JC: Yes, what I am now doing is seeking to empower
consumers with a TripAdvisor-style ratings site called
Best Hospital Advisor. So you can compare the costs of
having an operation in say the USA, Belgium and India
and look at the quality outcomes. This level of
information transparency will change things, particularly
36
+ February 2015
James Cercone, Sanigest Internacional
HCN feature
South Africa
Trouble in the Rainbow Nation?
South Africa is embarking on an ambitious process of reform to redress its historic imbalance in healthcare delivery. The
National Health Insurance policy envisions far-reaching change in both the payment and provision of healthcare. The
enormously successful private sector, however, has been left in the dark over its future role. What does the future hold for
this $30 billion private healthcare market?
For the majority of South Africans, healthcare resembles
the rest of sub-Saharan Africa. Both access and quality are
lacking in the public healthcare system. Coping with a
substantial burden of disease, aggravated by a ruinous
HIV/Aids epidemic, stretches it further. South Africa has a
life expectancy at birth of 59. Compare this with the other
BRICS: 74 in Brazil, 69 in Russia, 66 in India and 75 in
China.
Therefore it may come as a surprise that hospital groups
from the country have turned around the UK’s largest
private hospital group, run premier hospitals in Switzerland
and are now expanding across the world.
This is the dichotomised reality of healthcare in South
Africa: elite private hospitals that cater for 17% of the
population and a flagging public system that serves the rest.
The private sector must now negotiate the NHI (National
Health Insurance) reform, a competition commission
inquiry and a rapidly maturing market, if it wants to prosper
in Africa’s largest healthcare market.
The healthcare landscape
Universal access to healthcare is enshrined within South
Africa’s constitution. Whether you consider this promise to
have been fulfilled depends on what you consider to be
adequate healthcare. Although available to all, free-at-thepoint-of-care within a means-tested system, we were told
quality ranges from “disgraceful” to “functional”. Primary
care is mainly nurse-care and limited in rural areas. Access
to acute care has improved, but remains a matter of luck
and happenstance.
Money is not the issue. South Africa spends 8.9% of GDP
on healthcare; 4.5% private and 4.4% public. Expenditure
on health has gone up by 40% since 2000, but our sources
say quality has fallen.
In many ways, its segregated society is not conducive to
market growth. South Africa is one of the most unequal
countries in the world with Gini coefficients approaching
65%. Expensive private healthcare is a luxury few can
afford. This has resulted in a Swiss-style service for the
elites and few prospects to expand coverage more broadly.
February 2015
+
37
HCN feature
‘In many ways, South Africa’s
segregated society is not
conducive to market growth.
South Africa is one of the most
unequal countries in the world’
Inequality also fuels need. People talk about the quadruple
burden of disease: HIV/Aids and TB epidemics and coinfection; poverty related conditions; violence and crime;
and increasing chronic and lifestyle diseases. However
most of this demand bypasses the highly regarded private
hospitals and falls on an under resourced public system.
The public system
There is no shortage of critics of the public healthcare
system, but it is difficult to find a consistent answer for its
failings. We heard about a lack of resources, an ill
functioning means testing system and poor staff retention.
The government has even resorted to training staff in Cuba
to boost numbers.
One recurring complaint centred on governance and
management structures.
This occurred in varying strengths. Professor Van den
Heever, chair of social security systems at the Wits School
of Governance, was especially damming. He described the
health system as one of “internalized corruption”. “It is a
patronage model”, he says, “where politicians and
bureaucrats can promote their political ambitions through
the allocation of contracts, which inevitably impacts the
quality of care”.
Healthcare administration is decentralised. In line with the
constitution, provincial governments run the show, with no
split between payer and provider. Local management is
nonetheless poor. The regulatory framework is not
adequate to manage the “conflict of interest between
politics and service”, according to Van den Heever.
Resources could also be improved. South Africa’s 4,200
public health facilities have to serve over 13,000 people
38
+ February 2015
each. Around 70% of doctors and almost all specialists
work for the private system. Failing management and pay
structures hinder any change to this ratio. On-going efforts
to recruit private GPs to the public system are foundering
and unpopular with the profession.
Facing up to what Dr Anuschka Coovadia, head of
healthcare, KPMG Africa, called “a lack of trust in public
healthcare” and “a deficit in transparency and quality” is
not easy.
One solution may lie in the knowledge, experience and
capacity found in the private system. Coovadia estimates
“that about 70% of South Africans already use the private
sector initially, then fall back on the public system”. This is
primarily a function of price not quality; private acute care
is not cheap. But there is currently a lack of will to leverage
any of the private sector’s resources institutionally.
Coovadia again: “There is little connection between the
public and private, they are really parallel systems.
Although some minor overlap exists in human resources
and certain patient populations, there is a lack of effective
contracting between the public and private sectors. This is
a missed opportunity and a sign of system wide weakness”.
As one anonymous source told us, “it is going to take a
generation to switch back to the public sector”. Precisely
what that would look like is unclear, but some of the
rhetoric surrounding the NHI signals a reversal in health
delivery and the creation of a singular, unified health
system.
The National Health Insurance
Healthcare reform has been on the political agenda since
the end of apartheid. The NHI is in reality, the latest in a
long line of proposed reforms, which have encountered
their own political or financial obstacles. Having been
under discussion since 2009, the NHI white paper remains
unpublished and phasing in changes to both payment and
provision is a 14-year plan.
The polarised policy dialogue has suffered a lack of
direction and transparency. “There is a general anti-private
sector tone”, says Van den Heever. Dr Michael Thiede,
CEO of the Scenarium Group health systems consultancy,
described the 2011 green paper as “vague” and “lacking a
clear plan as to how to involve the private sector”.
The ambitious proposals include a split between payer and
HCN feature
provider, universal coverage for all South Africans and a
rationalisation of purchasing at a more centralised level.
The focus in delivery is on primary care, with pilot models
on-going in 11 districts. Evaluations by SARRAH, a DFIDfunded NGO, suggest poor to mixed results.
The public healthcare budget would have to rise from R125
billion ($10 billion) to R255 billion ($21 billion) in real
terms. This amounts to 2-3% of GDP and raises serious
concerns of affordability. The tax base is currently five
million strong and 90% of receipts come from the top
million. “The treasury won’t let it happen”, says Adam
Pyle, head of investor relations at Life Healthcare.
KPMG has produced an analysis suggesting the NHI is
affordable when considered alongside resulting
improvements in productivity. However, some combination
of VAT and income tax rises are unavoidable and South
Africa already spends more on healthcare than comparable
middle-income countries with worse results.
“The NHI would be very rudimentary”, said Thiede, “but
improving quality, particularly in primary care, is sorely
needed”.
The private hospitals, Netcare excluded, have no
involvement in primary care and should have little to fear.
Some sources expressed hope that the NHI could make the
state more willing to work with the private sector and
catalyse an increase in PPP type models or functional
outsourcing. Even on the payment side, the state could
learn from the private sector’s experience with DRG.
For now, an opaque policy dialogue means few people
know what’s on the horizon. Yet the green paper will have
concerned many. It specifies promotion of efficient and
effective service delivery in both public and private sectors,
and the pooling of risks and funds. This positions South
Africa’s private medical insurers firmly in the firing line.
The private insurance market
Private medical insurance is a R130 billion ($11 billion)
market by annual contributions, according to the statutory
regulator, the CMS (Council for Medical Schemes). The
insurers administer the heavily regulated not-for-profit
insurance funds known as medical schemes. There are open
and closed schemes. Open being freely available, closed,
restricted by profession. Administrators are also split
between the 17 third-party administrators and 10 self-
administered schemes.
In 2008 there were 112 schemes in total serving roughly 8m
beneficiaries. Now 85 schemes serve almost 9 million
South Africans. In 2014 the market grew by just 1%,
mostly through the restricted schemes and consolidation is
likely to continue. The CMS predicts the number of
schemes to halve by 2025 in the face of substantial
pressures.
Insurers complain of over-regulation, persistent medical
inflation and political uncertainty. Controlling costs is
complicated variability in pricing. Insurers are required to
pay for prescribed minimum benefits (PMBs) “at cost”,
regardless of what that cost might be. Doctors billing
separately to the hospitals doesn’t help. The insurers keep
raising premiums to maintain reserves at the legislated
minimum of 25% and stay afloat. Between 2001 and 2013
insurance contributions exceeded CPI inflation every year,
by 4% on average.
Still, the more likely culprit is the dominance of the market
leader, the Discovery Health Medical Scheme. Discovery
services around 2.6 million beneficiaries: 52% of the
market in open schemes. Bonitas, in second place, has
roughly 600,000. Discovery is a highly rated outfit with a
massive advantage in bargaining power and product
innovation. A reputable service offering is vital in a market
characterised by fierce non-price competition. Its publicly
listed administrator made profits of $105m for the financial
year ending 30 June 2014.
The lesser of the two giant schemes is GEMS, the
Government Employee Medical Scheme. By far the largest
restricted scheme, it now has almost two million
beneficiaries. The lower risk profile of government workers
has allowed it to offer attractive premiums and grow
rapidly - open schemes, by contrast, lack the luxury of
individual risk rating. But GEMS is rapidly running out of
civil servants.
The relationship between the insurers and the hospital
groups is crucial to understanding healthcare in South
Africa. Historically, the medical schemes negotiated as a
single body with the hospital groups. But now Discovery
has a huge advantage over the smaller schemes. “The total
cost of care is around 12-15% lower for the same treatment
for our clients”, explained Dr Jonny Broomberg,
Discovery’s CEO. Even when up against the powerful
hospitals it appears to be getting the upper hand.
February 2015
+
39
HCN feature
In smaller towns with only one hospital and few privately
insured patients, the hospital will need access to
Discovery’s clients, and Discovery to the hospitals beds.
However it typically negotiates with providers at a national
level where it has a stronger bargaining position. It still
needs the Big Three, Mediclinic, Netcare and Life, to offer
national coverage, but Discovery and GEMS combined
now have over 50% of the hospital caseload. We heard
almost 80% of doctors have also signed network rates with
the insurers, thereby trading around a 5% discount in
charges for ease and speed of payment. Discovery settles
with doctors in less than two days on average, which is fast
by any standards.
Nonetheless, the market is calcifying. Insurers need new
clients who are young and healthy to manage risk and keep
their coffers filled, but strict adherence to the PMBs keeps
insurance out of their reach. “The middle class is growing
tremendously in South Africa. But adhering to strict PMB
requirements means increasing premiums which eventually
restricts new entrants in the lower income range”, said
Etienne Dreyer, associate director at PwC. In an attempt to
push insurance coverage deeper into society, several
schemes are now lobbying for a change to the Medical
Schemes Act. They envision low-cost medical schemes
with exemptions from certain PMBs.
Discovery vs. NHI
“The PMBs are a generous package that covers 25 chronic
and 26 acute conditions. But insuring clients against all the
major risks to their health is expensive and creates a floor
price that is out of reach for about 1-2 million households”,
according to Broomberg. Remove the PMBs and the price
drops to about 40% of the current minimum liability.
Discovery estimate this could bring another 5 million
people into the private healthcare system.
The offering will be focused on primary care, where
Broomberg told us there is most demand. The large
hospitals, however, are unlikely to benefit from this kind of
package. “It won’t bring clients to us in the short term”,
says Pyle. “But in the long term we hope it may entice more
people into the private system”.
It appears the government now faces a dilemma: allow
Discovery to improve access to healthcare amongst the
population on its own terms; or push ahead with their
vision of a unified system. So we are left with a standoff
40
+ February 2015
between two competing visions. “The low cost medical
scheme would exclude a substantial proportion of the
population, for example the unemployed”, said Hevn van
Rooyen, Principal Officer of the Medihelp medical scheme.
Still, it would go some way to boosting the take-up of
private insurance and thereby improving access to
healthcare, albeit a very basic level of care. Australian
levels of private insurance, 40-45% of the population, are
often mentioned.
The future role of the medical schemes provides the subnarrative to the NHI debate. “The medical schemes cannot
provide universal coverage but another five million clients
is technically feasible”, says Van den Heever. Speculation
of a top-up role, the removal of tax exemptions or even
absorption into a single fund are worrying. But in the
absence of a concrete plan, most remain unconvinced.
There is huge divergence between the two systems and
people who use private healthcare are very loyal.
Broomberg believes, “the more likely scenario is that it
becomes a competitor to the medical schemes, starting at
the lower end of cost and coverage”.
The government has always been keen on a single fund.
But the schemes insist it’s not politically feasible. “Many
people have been paying into schemes for a long time and
they will not simply accept public services in lieu of access
to private healthcare”, said Van Rooyen. The other extreme
would be to let the medical schemes manage the fund,
whilst the public acts as payer. But this would represent an
equally unlikely bequest to the private sector.
Optimists hope the NHI can work in tandem with the
medical schemes to improve access and quality across the
board. Discovery might reportedly consider using the
public system if there was a significant improvement.
Dreyer told us, “more and more insured people go to the
public hospitals. Several of the Academic Institutions have
centres of excellence and GPs will often refer their patients
there over the private hospitals even”.
Change is coming, but it remains to be seen what form it
will take. In the meantime the number of major open
schemes has fallen to five and demand is seeping away to
hospital cash plans; they sell at a third of the price of the
cheapest insurance and now have 2.4 million clients. For
many insurers it cannot come soon enough. “The PMB
exemptions will almost definitely go ahead. The one barrier
is the competition commission investigation”, predicted
Thiede.
FOUNDED
COUNTRY
DESCRIPTION
BEDS
EBITDA
($m)
COMPANY
major hospital groups, 2014
REVENUE
($m)
South Africa
FACILITIES
IN SA
HCN feature
Mediclinic
1983 Mediclinic provides premium healthcare services across South Africa,
Namibia, Switzerland and the UAE. In South Africa it has 49 hospitals in
total, with a historic focus on the Western Cape, where it continues to
operate 17 hospitals. It has a reputation for high quality, acute hospital
services.
SA, Namibia,
Switzerland,
UAE
49
7,000
Netcare
1996 Netcare is South Africa's largest healthcare services group. They have
service lines in hospitals, primary care (Medicross) and managed care
(Primecure). In addition to 55 hospitals in South Africa they own 64
hospitals in the UK through BMI. Netcare has been listed on the JSE
since 1996
SA, UK
55
9,000
775
67
Life
1983 Life is South Africa's second largest healthcare group and is owned by
the Brimstone Investment Corporation. Brimstone is a "black owned"
and "black managed" group which supports the goal of empowerment
for South Africa's indigenous community. Life operates 63 hospitals in
South Africa, 1 in Botswana, 2 in Poland through Scanmed and 10 in
India through Max Healthcare. Of it's South African Hospitals 7 are
minority owned.
SA, Botswana,
Poland, India
63
8,400
723
62
Lenmed
1984 Lenmed operates 7 hospitals in South Africa, of which all but one are
owned by the group. It also operates 1 hospital in Mozambique and 1
in Botswana. Since their foundation in 1984 they have grown to
operate 1000 beds in South Africa and 350 abroad. Lenmed is PDIowned (previously disadvantaged individual) and it's shares are traded
over the counter.
SA, Botswana,
Mozambique
7
1,350
116
10
SA
7
1,200
-
-
1989 Melomed is opening a new greenfield hospital in Tokai to add to its
three existing hospitals and one outpatient centre. It is another group
that prides itself on black ownership and in offering services to
disadvantaged communities.
SA
5
660
-
-
Clinix
Healthcare
Melomed
1994 Clinix has grown rapidly since 1994 and now operates 7 hospitals in
South Africa. The group operates three PPP model facilities. It's
hospitals are typically situated in economically disadvantaged
communities.
603
52
This is the final piece in the puzzle: an on-going
investigation by the competition commission into the entire
South African private healthcare market. The scope is
extremely broad. A focus on determining whether the
private healthcare sector is functioning optimally or not,
doesn’t rule out much. A number of stakeholders appear to
be treating the enquiry as an opportunity to air their
frustrations with the current impasse, but no one expects to
hear anything conclusive before 2016. In the short term, its
potential to materially impact the hospital groups still
exceeds the NHI.
to learn how to run a private hospital”, said Thiede. The Big
Three provide comparable care to the UK at half the price
and are well regarded at home and abroad. Mediclinic,
Netcare and Life currently trade at impressive price-toearnings multiples of 28, 27 and 17 respectively. A
combination of scale, operating efficiencies and brand has
allowed them to capture 85% of the South African market.
The private hospitals
Price and service offering are also similar. The PR spin is
that Netcare is the largest and with lines in ambulances,
“Delegations from across the world come to South Africa
Going back 15 years, each group had its own geographical
focus. Netcare, the largest group, was strong in the
Johannesburg area; Mediclinic in the Western Cape; and
Life in the East. Now they are fairly evenly represented in
the metropolitan areas. The regulators have played a big
role in balancing power across the country.
February 2015
+
41
HCN feature
primary care and occupational healthcare, it has the
broadest offering. Life is the cheapest and the most
efficient. Mediclinic is the premium brand with a reputation
for high quality acute care. It is also true that Life has also
expanded its service offering, prices are going up year by
year and quality varies by hospital and doctor. Each group
is comfortable with its own model, but there is little
differentiation.
Negotiating with the medical schemes is crucial to their
success. Much like Discovery in the insurance market, the
Big Three, have a keen advantage over smaller hospitals.
“We have a three year rolling contract with the insurer”,
says Pyle, “which works well for us”. Over 95% of Life’s
clients are insured.
There are signs that smaller hospital groups may be
emerging. A specific focus on the low-income population
and townships, if workable, would differentiate them from
the Big Three. There is even the tantalising prospect of a
fourth group emerging to challenge them.
We heard of a few contenders. One source told us that
Clinix Health Group, which operates seven hospitals, and
Lenmed, with seven hospitals in the country and two
abroad, are a natural fit for merger. Moreover the
competition commission would probably allow it. Lenmed
is also a member of the NHN (National Hospital Network),
which operates as an umbrella group to leverage scale on
behalf of a network of 52 hospitals and 37 outpatient
centres.
South Africa’s huge mining industry is gradually shifting
from migrant to local labour. This lessens the need to
operate its own hospitals and may spur a bout of
acquisitions. In 2009 there were over 50 mining hospitals
still in operation in the country.
Growth by acquisition is almost impossible for the Big
Three, so they find ways around it. Life told us its preferred
route is via brownfield developments and opening new
businesses in complementary lines. It opened 249 beds in
2014. In 2015 it expects to open another 240, 150
brownfield and 90 greenfield. It has also expanded into
renal dialysis and mental health, where it sees excess
demand.
“Over the next five years the market in South Africa will
mature and bed growth will stop”, explained Pyle. “That is,
of course, unless the rules change and the market becomes
more hospitable. We are focusing on complementary lines
at the moment, but we have always been a growth company
and we want to stay one”.
42
+ February 2015
Expanding abroad, both to exploit new opportunities and to
diversify political risk, is still popular. With strong balance
sheets and a reputation for operational excellence, you
might expect them to have itchy feet. Life told us it wants
to build a complementary network across the whole of
Poland and recently invested a further £60m in two
specialty hospitals. Netcare is also rumoured to be in the
market, despite suggestions of high price to earnings
multiples in the Developing World stifling activity. We hear
it is serious about a stake in Indian hospital group Seven
Hills Healthcare.
Caution remains the watchword. Netcare and Mediclinic
paid a high price before the crash buying BMI, the UK’s
largest hospital chain, and Hirslanden, the largest Swiss
player, respectively. The question is whether anyone will
continue to look closer to home. South Africa can still offer
a wealth of unmet demand if anyone still hopes to access it.
It is difficult to see much changing in the short-to-medium
term. The Big Three are still growing and opening new
beds, but without a shift in public policy their scope is
limited. Might they look to the NHI to catalyse more
openness towards the private sector? “The private hospitals
could be treating NHI patients if the money follows the
patient. The question is whether the margins are there”, said
Dreyer. “But few insurers believe it will have an impact on
the market in the next five years. Ten years is definitely a
different picture, according to them!”
An uncertain future
A pragmatist might look at the South African market and
see a depreciating currency, slowing growth and a stagnant
insurance market. Thanks, but no thanks! Add the fears
over the NHI, a competition commission inquiry and heavy
concentration and you can see why the Big Three have
looked abroad. Creating growth in this mature, segregated
market will not be easy.
The private sector has to look beyond its existing clientele,
but growing access beyond the top fifth of the population
will be a struggle. Primary care and outpatient services are
an easier proposition than acute care. Primary accounts for
the lion’s share of demand and the biggest difference in
quality between public and private. More importantly acute
comes at a substantial cost that is rising every year. Even
Clinix, a provider of budget acute care, is only able to
achieve 10-15% savings over the premium brands.
An inability to control the cost of healthcare or combat
inequality prevents the wider use of private sector capacity.
HCN feature
The private hospitals would have no problem in taking up
extra demand. The issue is with more demand from the
same people, which has led to over servicing. South Africa
has only to look to its fellow BRICS, India, to see
affordable acute care. So does it have a similar offering?
In India the private sector accounts for about 80% of
patients not 20%. Its role is huge. Inequity and low
insurance penetration are also present, but this has not
stopped operators from targeting low to middle income
patients. You have to dig deep to find the same new and
innovative business models opening up the South African
market.
Many South Africans agreed that Life, Netcare and
Mediclinic are effectively stuck in their existing model
serving the insured elite, although one added: “What is
wrong with that, they are very successful businesses?" But
it would be a mistake to think that there is no activity
elsewhere. Clinix, Lenmed, Busamed and Nozala Health
Partners are all smaller secondary chains that focus on the
black majority. Interestingly Busamed, Nozala and Life are
also backed by black-empowered investment funds.
CareCross, the diversified healthcare group, also explicitly
targets the middle-income market.
Imaging and diagnostics groups may also see the market
rather differently. Regulations mean that hospitals cannot
own and run their own radiology departments, but have to
outsource these to professional radiologists. This has
boosted the imaging market and there are also signs of
activity in labs. The major players here are Lancet and
Pathcare and both have already expanded into several SubSaharan countries. Margins tend to be low, but innovative
companies like Alere, the diagnostics supplier, and
Metropolis Healthcare, the Indian lab group, have also been
attracted.
Of course there are challenges. Ameera Shah, MD and
founder of Metropolis said: “It was a surprise to us as it was
the first mature market we have entered, which has already
been consolidated. Another was that often patients would
claim insurance, which Metropolis could not then claim on.
There are many limits on insurance cover within the
national scheme and this means that we are constantly
having to write off a percentage of sales”.
just 17% of its population and life expectancy varies
enormously across society. Inequality in health outcomes is
reflected in spending: $300 per patient per year in the
public sector and over $2000 in the private sector. An
affordable offering has to strike a delicate balance between
these two levels of service and the vested interests they
represent.
But South Africa still has advantages, above and beyond an
ocean of latent demand. Many people see it as a gateway or
stepping stone to exciting opportunities across the rest of
the continent. Markets in Nigeria, Kenya, Tanzania and
elsewhere are beginning to look attractive and private
equity is already moving in. Dreyer also spoke of “the great
entrepreneurial mind-set in South Africa” and the
unparalleled opportunity it presents for telemedicine. PPP
models also have huge potential, contingent on greater
connection between public and private. There is a lot
resting on a successful process of reform.
The NHI could address this divide as well as the chronic
problems within the public system. Back in 2011, the South
African Minister of Health, put forward two preconditions
for the introduction of NHI: a major improvement in the
quality of care in the public sector and containment of the
cost of care in the private sector. Unfortunately, nobody
would suggest either of these has yet been achieved and
this prolongs the current uncertainty. So difficulties remain
for both private operators facing a stagnant market and a
public system presiding over an embarrassing level of
unmet need.
We gave the last word to Thiede, “I am fascinated by the
dichotomy in healthcare in South Africa. There is such a
strong and impressive private sector that is a significant
element of the South African economy. It is a tragedy this
is not utilised to bring healthcare to a much larger share of
the population”.
HCN
Without the combination of political uncertainty and vested
interests within the incumbent public sector, there might be
many more exciting businesses to speak of. But the
entrenched divides in society are always present and
arguably an intractable barrier to progress. South Africa
already spends over 4% of GDP providing healthcare for
February 2015
+
43
HCN feature
Andrew Bastawrous, co-founder, Peek Vision
An estimated 285 million people worldwide are visually impaired and 39 million are blind. More than 90% of blind people live in the
Developing World where treatment is often scarce, expensive and inaccessible for many. Peek Vision – the Portable Eye Examination
Kit – uses a smartphone and a clip-on adapter to carry out eye examinations. We talk to founder Andrew Bastawrous to find out more
about Peek and ophthalmology in developing countries.
Bastawrous came up with the idea for Peek in 2011 whilst
studying eye disease in Kenya for his PhD at the London
School of Hygiene & Tropical Medicine (LSHTM). “It was a
logistical nightmare. We were transporting fragile, expensive
equipment from village to village with poor road access and
limited electricity,” he says.
Peek uses a 3D printed clip-on adapter that uses a smartphone
camera and flash to see inside the eye. “It makes it possible to
diagnose the major causes of visual impairment such as
cataract, glaucoma, diabetic retinopathy and macular
degeneration just by being able to see the lens, retina and optic
nerve”.
Peek was validated in a study of 5,000 Kenyan patients that
found that the image quality of Peek and traditional equipment
to be similar.
Currently involved in studies in the UK, Kenya, Tanzania,
Botswana, Mali, Malawi and India, Peek is a social enterprise
and collaboration between the International Centre for Eye
Health in the LSHTM, the University of Strathclyde providing
the bio-medical engineering and the NHS Glasgow Centre for
Ophthalmic Research.
How is the project funded? “Peek has received a lot of interest
from venture capital and private equity, but we want to ensure
our social mission is maintained,” says Bastawrous. “We have
received a grant from the Queen Elizabeth Diamond Jubilee
Trust and we ran a successful crowd-funding campaign
allowing pledgers to personally pre-order adapters for
themselves or to, donate the adapter to a healthcare worker in a
low-income country. We reached 157% of our initial target.
The remainder of the production pipeline was covered by a
grant from a partnership between TED.com and Mazda.”
The adapter costs $107 and is patent pending; orders are
scheduled to ship by October 2015. There are other pieces of
hardware in development, but he did not reveal what these
would be.
vast majority of people who need medical attention live in
remote locations.”
Across the countries Peek is present, the private sector plays a
minor role. “There is a small private sector present, along with
government and NGO run programmes but most eye hospitals
run at around 40% capacity. The patients are hard to find, so
there is a need to task shift and go out into the communities.
There are government and NGO backed programmes that set
up screening clinics and transport patients to the cities for
treatment.”
“Cost is one of the biggest barriers to overcome. Transport to
the clinics is expensive, many of the people affected live handto-mouth, and the cost of not working for a day stops people
from seeking treatment. There is a knock on economic effect as
children or relatives cannot work or go to school, because they
have to be the eyes for that person.”
Consumers also need to be better educated about visual
impairment. “In some cultures, losing your sight is accepted as
just a part of old age. Outreach programmes are running in the
communities to raise awareness, for screening and
counselling.”
Eye health has taken a back seat to other health issues such as
Malaria and HIV, but Bastawrous says thanks to advancements
in these fields, eye health is starting to climb up the agenda.
Our Analysis: Innovations such as Peek are an important tool
for extending access to health care in remote locations with
poorly developed infrastructure. It is estimate that more than
60% of mobile phones in the world are being used in developing
countries. We expect the relationship between mobile
technology and healthcare to continue to grow, especially in the
fields of patient screening and chronic disease management.
“The technology makes diagnostics quicker, easier and cheaper
in general, so the applications extend beyond just low-income
settings,” says Bastawrous of the future.
So how advanced is ophthalmology in these nations?
“In the whole of Kenya (a population of 44m) there are 86
ophthalmologists – 100 times less that in the UK. Half of them
are based in Nairobi, where only 8% of the population live. The
44
+ February 2015
Andrew Bastawrous, Peek Vision

February 2015 Hygeia fails to find a buyer Do PPPs work in the

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