Health care industry

The health care sector is one of the world’s largest industries. It is relatively insensitive to economic fluctuations compared to other sectors and has posted above-average growth over the past years.

The main growth factors are:

  • rising medical needs deriving from aging populations
  • stronger demand for innovative products and therapies
  • advances in medical technology
  • growing health consciousness, which increases the demand for health care services and facilities

In the emerging countries additional drivers are:

  • expanding availability and correspondingly greater demand for primary health care
  • increasing national incomes and hence higher spending on health care

At the same time, the cost of health care is rising and claiming an ever-increasing share of national income. Health care spending averaged 9.0% of GDP in the OECD countries in 2008, with an average of US$3,060 spent per capita. The United States had the highest per capita spending (US$7,538), as in the previous years, followed by Norway (US$5,003) and Switzerland (US$4,627). Germany ranked ninth among the OECD countries with per capita spending of US$3,737.

HEALTH CARE SPENDING AS % OF GDP


in % 2008 2000 1990 1980 1970
Sources: OECD Health Data 2010
USA 16.0 13.6 12.2 9.0 7.1
France 11.2 10.1 8.4 7.0 5.4
Switzerland 10.7 10.2 8.2 7.3 5.4
Germany 10.5 10.3 8.3 8.4 6.0

in % 2008 2000 1990 1980 1970
Sources: OECD Health Data 2010
USA 16.0 13.6 12.2 9.0 7.1
France 11.2 10.1 8.4 7.0 5.4
Switzerland 10.7 10.2 8.2 7.3 5.4
Germany 10.5 10.3 8.3 8.4 6.0

Per capita health care spending in the OECD countries grew at an average annual rate of 4.2% between 2000 and 2008. In Germany, per capita health care spending increased by 1.6% per year over the same period. This is the smallest increase among all OECD countries during this period. The relatively slow growth in health care spending in Germany is due in particular to the introduction of cost-containment measures.

On average, public sources funded 72.8% of health care expenditures in the OECD countries in 2008. The United States and Mexico have the lowest level of public funding, with less than 50%. In Germany, 76.8% was publicly funded in 2008, which was virtually the same as in 2007.

Most of the OECD countries have enjoyed large gains in life expectancy over the past decades thanks to improved living standards, public health interventions, and progress in medical care. In 2008, the average life expectancy in the OECD countries was 79.4 years. In Germany, life expectancy of 80.2 years was nearly a year more than the OECD average. Japan has the highest life expectancy of all OECD countries with 82.7 years.

Health care structures are being reviewed and possible cost-cutting potential identified in order to contain the steadily rising health care expenditures. Market-based elements are being introduced increasingly in the health care system to create incentives for cost and quality-conscious behavior. Overall treatment costs shall be reduced through improved quality standards and optimized medical processes. In addition, ever greater importance is being placed on disease prevention and innovative reimbursement models linked to treatment quality standards.

In the United States, our biggest single market, the government passed a sweeping health care reform in 2010. It is planned to phase-in health insurance coverage for the roughly 45 million people who are currently not insured. Basic health insurance is to be compulsory from 2014 onwards. Larger companies must offer their employees health insurance coverage, while small companies and low-income households will receive government assistance to take out health insurance. Through these measures the U.S. government plans to increase the proportion of the population covered by health insurance from currently around 85% to 95% by the year 2019.

Our most important markets developed as follows:

The dialysis market

In 2010, the value of the global dialysis market was approximately US$69 billion, equivalent to growth of 4% in constant currency. The market for dialysis care (including renal pharmaceuticals) accounted for approximately US$57 billion and the market for dialysis products for about US$12 billion.

The number of dialysis patients worldwide increased by about 7% to more than 2.0 million. The pie chart shows their regional distribution:

Prevalence, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region, ranging from well below 100 to over 2,000 patients per million population (p. m. p.). Prevalence is highest in Taiwan with 2,700 p. m. p., followed by Japan with 2,490 p. m. p., and the United States with approximately 1,890 p. m. p. It averages about 1,030 in the 27 countries of the European Union. The far lower global average of approximately 380 p. m. p. is due, on the one hand, to differences in age demographics, distribution of renal risk factors (such as diabetes and hypertension), and genetic pre-disposition and cultural habit (such as diet). On the other hand, access to dialysis treatment is still limited in many countries. A great many individuals with terminal kidney failure do not receive treatment and are therefore not included in the prevalence statistics. A comparison of economic output and national prevalence rates suggests that access to treatment is restricted especially in countries where GDP per capita is less than US$10,000 per person per year. However, the generally rising global prevalence rate suggests that more and more people are receiving dialysis treatment.

Dialysis care

Of the approximately 2.0 million patients receiving regular dialysis treatment in 2010, more than 89% are treated with hemodialysis, while about 11% choose peritoneal dialysis.

The majority of hemodialysis patients are treated in dialysis clinics. There are about 29,000 dialysis clinics worldwide with an average of 70 hemodialysis patients per clinic.

The organizational structures differ considerably depending on whether the health care systems in the respective countries are organized more on a public or private basis. In the United States, for instance, most of the more than 5,000 dialysis clinics are privately run, and only about 1% are publicly operated. By contrast, about 60% of the more than 5,000 dialysis clinics in the European Union are publicly owned. In Japan, about 80% of the dialysis clinics are run by private nephrologists.

In the United States, the market for dialysis care is already highly consolidated. Taken together, Fresenius Medical Care and the second largest provider of dialysis care − DaVita − treat about 65% of all U.S. dialysis patients. In 2010, Fresenius Medical Care maintained its market-leading position of about 33%.

Outside the United States, the markets for dialysis care are much more fragmented. Here, Fresenius Medical Care competes mainly with independent clinics and with clinics that are affiliated with hospitals. Fresenius Medical Care operates over 934 dialysis clinics in more than 35 countries and treats over 76,959 patients. Together, these represent by far the largest and most international network of dialysis clinics.

In 2010, the number of peritoneal dialysis patients worldwide was about 219,000. Fresenius Medical Care supplies approximately 39,000 patients with peritoneal dialysis products, and has a market share of about 17% according to sales. In the United States, its market share was 26%. Fresenius Medical Care is the global No. 2 in this market after Baxter.

Dialysis reimbursement systems differ from country to country and often vary even within individual countries. In the United States, the treatment costs for terminal kidney failure are covered by the public health insurers. The public health care programs, the Centers for Medicare & Medicaid Services (CMS), cover the medical services for more than 80% of all dialysis patients in the United States. In 2010, CMS reimbursements accounted for 32% of Fresenius Medical Care’s revenues. Changes in the CMS rates or method of reimbursement therefore have a significant importance on our business in North America.

Dialysis products

In the dialysis products market, the most important products are dialyzers, hemodialysis machines, concentrates and dialysis solutions, and products for peritoneal dialysis. Fresenius Medical Care is the world market leader in dialysis products with a market share of about 33%, followed by Baxter with 19% and Gambro with 15%. These top three manufacturers serve about two thirds of the market demand. Each of the other competitors, mainly from Japan, have a single-digit percentage market share. Dialyzers are the biggest product segment. About 203 million units were sold in 2010, of which about 92 million, or almost half, were produced by Fresenius Medical Care. Of the approximately 69,000 new hemodialysis machines that were brought onto the market in 2010, about 55% were from Fresenius Medical Care. In the United States, our most important business region, Fresenius Medical Care had a share of over 80% of the independent market in these two product segments. We define the independent market as all dialysis clinics that do not belong to a major U.S.-wide dialysis care provider such as Fresenius Medical Care or DaVita. In 2010, China was our second largest market, where we sold more than 3,800 new hemodialysis machines. 48%, or almost half of all machines used in the Chinese market, are now produced by Fresenius Medical Care.

The market for infusion therapy and clinical nutrition, intravenously administered drugs, and medical devices

In the markets in which Fresenius Kabi operates there are four main growth factors:

  • rising medical needs deriving from aging populations,
  • stronger demand for innovative therapies,
  • increasing national incomes in the emerging markets as a driver of higher spending on health care and thus greater availability,
  • the use of generics as part of the efforts to contain costs in the health care sector.

Generally, the efforts to contain costs in the health care sector are ongoing. In our view, and judged from today’s vantage point, the focus is mainly on the pricing of patented drugs and the prescription drugs segment in the pharmacy market. In the future it will therefore become all the more important to provide best-in-class products and therapies at affordable prices for a health care market that is generally beset by financial constraints and ever-rising demands.

In the market for infusion therapy and clinical nutrition, therapies that offer high standards of health care paired with cost advantages are increasingly gaining importance in Central and Western Europe due to the general cost pressure. Studies show that, in cases of health or age-induced nutritional deficiencies, the administration of food supplements can reduce hospital costs by an average of €1,000 per patient – through shorter stays and less nursing care. At the time when they are admitted to hospital, at least 25% of all patients in Europe are suffering from nutritional deficiencies, or have an elevated risk of developing nutritional deficiencies. Much higher figures of 50 to 60% are reported for people who require nursing care, especially the elderly. The costs caused by health-induced nutritional deficiencies are about €170 billion per year Europe-wide.

In Central and Western Europe, the total market for infusion therapy and clinical nutrition is growing at a low single-digit rate. Growth rates are in the high single to double digits in the emerging markets of Asia-Pacific, Latin America, and Eastern Europe.

Based on its own estimates, Fresenius Kabi considers its relevant market for infusion therapy and clinical nutrition (excluding the United States and Japan) to be about €8 billion.

We also expect the demand for generics to continue growing. Generic drugs are more advantageous from health economics aspects than original preparations because of their significantly lower price and they already make a vital contribution to health care today.

The market for IV generics is characterized by moderate volume growth, steady price erosion, and fierce competition. Growth is mainly achieved through new generics that are brought to market when the original preparation goes off-patent. In Europe and the United States, the market for IV generics is growing at a mid-single-digit rate. We expect the U.S. market for IV drugs that go off-patent from 2010 to 2020 to grow to approximately US$22 billion on a cumulative basis. These figures are based on the sales of the original preparations in 2009 and do not take account of the usual price erosions for generics.

Based on its own estimates, Fresenius Kabi considers its relevant market for intravenously administered generics (without Japan) to be around €14 billion.

The market for medical devices for infusion therapy, IV drugs, and clinical nutrition is growing in Europe at mid-single-digit rates. Here, the main growth drivers are technical innovations that focus on application safety and therapy efficiency.


Sources: German Society for Nutritional Medicine (DGEM) 2009; Own research, market data refer to Fresenius Kabi’s relevant and addressable markets. Those are subject to annual volatility due to currency fluctuations and patent expiries of originator drugs in the IV drug market, among others

The German hospital market

The total volume for hospital treatment1 (excluding research and teaching) in Germany was about €70 billion in 2008. This was approximately one-fourth of total health care expenditures. Personnel costs account for about 61% of hospital costs, and material costs for 39%. Personnel costs rose by 3.4%, and material costs by 6.3%.

The number of hospitals in 2009 was 2,084 (2008: 2,083). After declining for years, the number of beds only fell slightly to 503,341 (2008: 503,360). Over the last five years the number of beds has declined at an average annual rate of 1.0%. Nonetheless, with 6.15 beds per 1,000 population, Germany is still well above the OECD average of 3.6 (2008). The average stay of a patient in an acute care clinic in Germany fell overall by 0.1 days over the same period and was 8.0 days in 2009.

On the other hand, the number of inpatient admissions has increased. The number of inpatient admissions at acute care clinics in Germany declined at first after the introduction of DRG-based reimbursement. However, despite the shift towards outpatient care, the number of admissions has been rising again continuously since 2006. This is largely due to changing demographics. In 2009, the number of admissions was 17.82 million. That was about 300,000 or 1.7% more than in 2008 and is equivalent to 218 admissions per 1,000 population. Other countries rank well below the German level. In 2008, the EU average was 175 admissions per 1,000 population. In the last five years leading up to 2009, the number of admissions in Germany has risen at an average annual rate of 1.9%. The average costs per admission have increased by 2.5% on average over the last five years until 2008.

According to a survey by the German Hospital Institute (DKI), the financial situation at many hospitals in Germany remains difficult: 56% of the hospitals expect to earn a surplus in 2010 (2009: 44%), 16% expect to make a loss (2009: 26%), and 28% expect to break even (2009: 27%). Of the clinics surveyed, about 44% assess their financial situation as good and 19% as unsatisfactory. The other 37% saw the situation as mixed. The risk of hospital insolvencies is estimated at 8% for 2010 (2009: 11%).

The difficult financial and economic situation at many hospitals has been caused by significant investment needs. This is due in large part to an investment backlog that has accumulated because the federal states have not met their statutory obligation to finance necessary investments and major maintenance measures sufficiently in the past due to budget problems. Moreover, the investment needs are mainly driven by technological advances, higher quality requirements, and necessary modernizations. The Federal German Ministry of Health estimates that the current annual need for investments at German hospitals is about €5 billion.

Against this backdrop, the privatization trend in the German hospital market continued, albeit on a very modest scale, with the share of private hospital beds rising to 16.6% (2008: 15.9%). However, as the chart shows, with a share of 48.7%, the bulk of the hospital beds continued to be in the public sector (2008: 49.0%).

According to our research, about €230 million in hospital transaction revenues were acquired in 2010, which was less than the year before (2009: €504 million).

The Hospital Funding Reform Act (KHRG) that came into force in March 2009 also had an overall positive effect on the financial situation of hospitals in Germany in 2010 and led to increased revenues, which experts estimate at 4% per year in 2009 and 2010. Since the convergence phase expired at the end of 2009, hospitals now only bill on the basis of the standardized base rates (DRG system) valid throughout the particular federal state.

KEY FIGURES FOR INPATIENT CARE IN GERMANY


  2009 2008 2007 2006 2005 Change 2009/2008
1 Total costs, gross
Hospitals 2,084 2,083 2,087 2,104 2,139 0%
Beds 503,341 503,360 506,954 510,767 523,824 0%
Beds per 1,000 population 6.15 6.13 6.16 6.20 6.35 0.3%
Length of stay (days) 8.0 8.1 8.3 8.5 8.7 -1.2%
Number of admissions (millions) 17.82 17.52 17.18 16.83 16.54 1.7%
Average costs per admission in €1 n/a 4,146 4,028 3,932 3,813 n/a

  2009 2008 2007 2006 2005 Change 2009/2008
1 Total costs, gross
Hospitals 2,084 2,083 2,087 2,104 2,139 0%
Beds 503,341 503,360 506,954 510,767 523,824 0%
Beds per 1,000 population 6.15 6.13 6.16 6.20 6.35 0.3%
Length of stay (days) 8.0 8.1 8.3 8.5 8.7 -1.2%
Number of admissions (millions) 17.82 17.52 17.18 16.83 16.54 1.7%
Average costs per admission in €1 n/a 4,146 4,028 3,932 3,813 n/a

Quality is increasingly becoming a key competitive factor for the hospital market. Transparency and comparability of the treatments for the patients and their doctors will play a more and more decisive role.

In 2009 the post-acute care market in Germany comprised a total of 1,240 clinics, almost the same as the year before. The number of beds was 171,489 (2008: 171,060). 55.8% (2008: 56.3%) of the clinics were private clinics. An almost unchanged 26.1% (2008: 26.0%) were independent non-profit clinics and the share of public clinics increased to 18.1% (2008: 17.8%). Private clinics accounted for 66.8% of the total number of post-acute care beds (2008: 66.9%). Independent non-profit clinics and public clinics accounted for 16.0% (2008: 16.2%) and 17.3% (2008: 16.9%), respectively. The total number of admissions in Germany decreased by about 4,000 admissions to 2.01 million. The average length of stay rose to 25.5 days (2008: 25.3 days).


1 Data 2009 not available
Sources: German Federal Statistics Office; German Hospital Institute (DKI) – Krankenhaus Barometer 2010, OECD Health Data 2010, German Ministry of Health

The market for engineering and services for hospitals and other health care facilities

The market for engineering and services for hospitals and other health care facilities is very country-specific and depends to a large extent on factors such as public health care policies, government regulation, levels of privatization, economic conditions, and demographics.

In markets with established health care systems and mounting cost pressure, the challenge for hospitals and other health care facilities is to increase their efficiency. Here demand is especially high for optimized hospital processes and the outsourcing of technical support services to external specialists, enabling hospitals to concentrate on their core competency − treating patients. In emerging markets the focus is on building and developing infrastructure and improving the level of health care.

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