Health care sector and markets

The health care sector continues to be one of the world’s largest industries and is considered to be largely independent of economic cycles. The demand especially for life-saving and life-sustaining products and services will remain intact as they are medically needed and the population is aging.

However, experts estimate that further financial constraints in the public sector could result in more pricing pressure and a slowdown in revenue growth as governments seek to ease their health care spending.

Nonetheless, industry observers believe that, despite all challenges, the sector will also see a comparatively solid financial performance in the foreseeable future. Favorable demographic trends, medical advances, and the large number of diseases that are still difficult to cure or are incurable should be growth drivers. In addition, the need to increase the availability of primary health care and the growing demand for high-quality medical treatment in the emerging countries will also continue to generate steady growth rates.

THE DIALYSIS MARKET

We expect the worldwide number of dialysis patients to rise by approximately 6% p. a. in the coming years, although significant regional differences will remain. For the United States, Japan, and the countries of Central and Western Europe, where prevalence is already relatively high, we forecast patient growth in the region of 3 to 5% p. a. In many emerging countries, however, where needs are still not met sufficiently, we expect growth in patient numbers of up to 10%, and in some countries even higher rates. This growth is driven by steadily evolving health care systems that are providing broader patient care. As more than 80% of the world’s population lives in these countries, this opens up strong potential for the entire spectrum of dialysis care and dialysis products.

In addition, demographic factors such as aging populations and the growing number of people suffering from diabetes and hypertension, which are ailments often preceding terminal kidney failure, are contributing toward continued growth of the dialysis markets. The age expectancy of dialysis patients is also rising thanks to ongoing advances in treatment quality and a rising standard of living, especially in the emerging countries.

We expect that the total dialysis market could rise by about 4% in 2011 (2010: ~ €69 billion; unchanged currency relations assumed).

Effective January 2011, a new payment system for dialysis patients covered by the public health care program was introduced in the United States – our largest market – which encompasses those services that were paid under the composite rate as well as separately payable drugs and laboratory tests.

Further information is provided here.

THE MARKET FOR INFUSION THERAPIES AND CLINICAL NUTRITION, GENERIC IV DRUGS, AND MEDICAL DEVICES

The market for infusion therapies and clinical nutrition in Central and Western Europe is expected to continue to grow at a low single-digit rate in the coming years. However, given the financial constraints in these countries, the efforts to contain costs in the health care sector are being pursued undiminished. Continued high growth potential is expected in Asia- Pacific – especially China – and in Latin America and Eastern Europe. We expect the market in these regions to continue growing at high single to double-digit rates.

With generic IV drugs the growth dynamic will continue to be driven by originator drugs going off-patent. A factor working in the opposite direction is the price erosion for products that are already in the market. We expect the market for IV generics in Central and Western Europe, as well as in the United States, to grow at mid-single-digit rates in 2011.

We also expect rising demand for medical devices in the coming years.


Sources: IMS Health Forecasts

THE GERMAN HOSPITAL MARKET

At the end of 2010, the German Bundestag passed the Act on Sustainable and Socially Balanced Financing of Statutory Health Insurance (GKV-FinG), which will also affect the hospital market. Under the GKV-FinG, all the principal actors in the health care market are required to participate in compensating for the deficit of €9 billion anticipated in the public health insurance system. The contribution of the hospitals toward covering the funding deficit is estimated at about €0.5 billion in 2011.

The current reforms focus on the public health insurers’ revenues and on cost-containment measures and so far do not present any major changes in the legal framework conditions for the acute and post-acute care clinic market.

With regard to their funding, hospitals can also expect rising budgets in principle again in 2011. However, the GKV-FinG limits the price escalation for hospital services to 0.9%. That corresponds to a reduction of 0.25 percentage points of the wage sum inflator. A maximum reduction of 0.5 percentage points of the wage sum inflator is expected in 2012. Moreover, additional admissions above the allocated budget numbers of 2010 will only be reimbursed at a rate of 70% in 2011.

As a result of the limited revenue increases, it will probably not be possible to cover all the expected cost increases at the hospitals – especially with regard to personnel costs as a result of wage tariff increases. Hospitals will continue to face cost pressure and the need for further savings in their operations.

In Germany as from the beginning of 2010, inpatient acute care services are reimbursed only on the basis of the standardized base rates of the individual federal states (DRG system). The different base rates from state to state are to be successively harmonized over a period of five years from 2010 onwards toward a standardized, nationwide base rate corridor. The originally planned convergence to a standardized, nationwide base rate starting in 2015 was lifted.

However, in light of the past experience with the DRG system, the positive development in the number of admissions, and the now completed convergence phase, HELIOS does not expect any major changes in the reimbursement of its services.

Under the Hospital Funding Reform Act (KHRG), the criteria for the introduction of flat-rate investment allowances should be agreed by the end of 2012. Instead of the previous application-based financing of hospital investments, state governments can decide to finance investments on the basis of a performance-oriented allocation of investment funds. In line with the DRG system, it is planned to determine the flat-rate investment allowances on the basis of a base rate applying at the state level and standardized, nationwide investment appraisal parameters.

Given their growing investment needs but declining government support, hospitals are under growing pressure to rigorously tap the potential for rationalization. According to a study by the German Hospital Institute (DKI), less than half of hospital investment is financed by the state governments with public funds. Financing investments is a challenge especially for public hospitals. The financial situation of local governments will remain constrained, reducing their ability to cover their hospitals’ operating losses and finance investments. This will further limit the financial scope for supporting lossmaking hospitals and investment in public health care facilities, and will encourage privatizations.

It is generally expected that the proportion of private hospitals will rise at the expense of public hospitals. Private hospital chains and alliances are likely to be able to respond to the pressure to improve efficiency better than public hospitals. They often have more experience in operating commercially and creating efficient structures. They also have the potential to secure cost advantages in procurement. Finally, private operators have more experience with the process know-how for acquiring and integrating new facilities and quickly adjusting their cost structures. Experts anticipate that privatizations will increase in 2011 due to the more difficult situation of the hospitals.

Another future challenge for hospitals will be personnel shortages due to, among other things, restrictive regulations on working hours and a higher demand for specialized staff in some areas. Experts estimate about 6,000 unfilled vacancies alone on the medical side. Retaining qualified staff over the long term and training them are seen as important success factors for a hospital.

Other crucial factors for a hospital’s success are not only cost-efficient processes, a well-structured medical offering, and well-trained staff, but also excellent medical quality. HELIOS is convinced that systematic quality management and the documentation of medical outcomes should not just serve as marketing instruments, but should be an element of hospital management, and thus part of the reimbursement. In the long run, initiatives are expected that provide for the introduction of quality-based reimbursement (pay-for-performance) and allow hospitals the option of concluding selective contracts with health insurers. With its strict focus on quality and transparency, HELIOS would be well prepared for such a future development.

No consequences from changes in the law are expected in the post-acute clinic segment. However, pricing and other controls by health insurers will continue to increase. Experts assume the importance of post-acute care will rise due to demographic trends, longer working lives, and the growing prevalence of chronic diseases. As a result of growth in acute care admissions and continuous improvements in HELIOS’ internal referral management, we expect to be able to leverage potentials from the combination of acute care and post-acute care, thereby increasing our number of post-acute care admissions.


Sources: German Ministry of Health, German Hospital Institute (DKI)

THE MARKET FOR ENGINEERING AND SERVICES FOR HOSPITALS AND OTHER HEALTH CARE FACILITIES

In industrial countries, owing to demographic trends, growing demand for high-quality, efficient medical care – and thus for engineering and services for hospitals and other health care facilities – is expected to continue. The focus is on services, ranging from the maintenance and repair of medical and hospital equipment, facility management, and technical operation, through to total operational management and infrastructure process optimization – especially within the framework of public-private partnership (PPP) models. Additional growth opportunities are presented by the advancing privatization of health care.

In the emerging countries, there is growing demand above all for infrastructure development, but also for efficient, needs-oriented medical care. The provision of primary health care is now very largely in place. In many markets, the focus now is therefore on building up secondary care, developing tertiary health care structures in the form of “centers of excellence”, and creating training and research structures. All in all, we expect the market for engineering and services for hospitals and other health care facilities to continue growing in 2011.

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