Selected commentary from the PHM Emerging Markets Healthcare Monitor is largely embargoed for a time per publication policies.  Other commentary by date.

UK - Circle Claims Private Hospital Market ‘Completely Unfair and Anti-Competitive’

December 2010

Humana Acquires Healthcare Provider

November, 2010

Falck and Others Plan €1 B + Flotations

January, 2010

Medisave Allowed at Malaysian Hospitals

February, 2010

Fortis Healthcare to Buy 23.9% Stake in Parkway for $685

March, 2007

Columbia Asia Group to Set-Up 14 Hospitals in India by 2012

April, 2010

CEE Exposure Will Hit Austrian Insurance Groups VIG, UNIQA


UK - Private Hospital Market ‘Completely Unfair and Anti-Competitive’

December, 2010

Apparently, private hospitals are charging “unnecessarily high prices,” according to one of the newest players in the UK’s hospital sector.

Ali Parsa, a managing partner of Circle, is quoted as claiming the formation of networks by the major private hospital groups, in partnership with insurers, was driven by a need to protect “monopolies” for which they had “paid over the nose”.

With this story, and too often when investors and hospital executives are negotiating with insurance companies, we’re reminded of the old adage…

“Be careful what you wish for.”

Mr. Ali Parsa states most insurance companies now recognise Circle, but he filed a complaint with the UK’s Office of Fair Trading after realising that “we should never have gone through this nonsense”, describing it as “completely unfair and anti-competitive”.

The development and management of networks of contracted medical providers, be they hospitals, home care, mental health services, etc. is a long established method of managing healthcare costs, access, and quality.  It is one the complex administrative tasks insurance companies have managed to do well over the years.

Might a hospital executive team, inexperienced in insurance contracting and network development, find the contractual process unfair? Yes.

Will that provider find surprises once the contracts are in place and the many industry standards and metrics begin to modulate reimbursement? Most likely.

Apparently, like many players in the India and Saudi Arabia hospital sectors, Circle is facing the harsh realities of private healthcare contracting.  The issue isn’t that contracting and network developments are unfair, a common refrain in developing markets, but rather the issue is the failure of sector players to fully understand how private insurance works and its impact on their hospitals. And in markets where hospitals have not learned from the past, such inaction can be very costly.

Time and again investors and their executive leaders at hospital companies have been advised, even cautioned, to gain a full understanding of the private reimbursement model(s), especially private insurance.  The reason is simple: the insurance sector has a full understanding of how hospitals operate, from commissioning to billing, clinical outcomes to preventative care.  This is not a new experience for those private health insurance companies negotiating with hospitals.

But for many hospital executives, the experience and processes are new.  Early in 2008, the director general of Dr Soliman Fakeeh Private Hospital in Jeddah claimed the hospital was being “squeezed” on payments by insurance companies trying to recoup costs on cut-price premiums.  As we wrote then, and we repeat;

“…Actually, the squeeze took place when the agreement was executed…"

"Investors need to exert pressure on hospital management to better, no fully, understand the changing market place and the realities on private reimbursement.  In 2007 Injazat Capital noted the…lack of familiarity with third party payment as a sector risk.”  March, 2008. PHM Emerging Markets Healthcare Monitor.


Humana Acquires Healthcare Provider 

November, 2010 

We are not impressed with this move.

Human has announced its plans to acquire Concentra, an occupational medicine, urgent care, and physical therapy provider in the US. 

Humana CEO Michael McCallister claims the move “reinforces our core businesses…”

Unfortunately, we’ve seen this picture before and it isn’t pretty. 

Health insurance companies seem to have an inferiority complex, the world over.  Not content to focus on their actual core business, which is insurance, too many companies try to mash-up their growth strategies.

Over the years such mash ups have included hospital ownership, physician practices, out-patient surgical centers, disease management, and so on. 

Humana claims their competitors are diversifying, like CIGNA’s move to expand their international business.  But CIGNA’s move is an expansion of their insurance business.

We would much rather see Humana put its energies and resources into growing its “core competencies,” including its life insurance and Availity lines………….HK 


Falck and Others Plan €1 B + Flotations

January, 2010

Falck, Europe's largest fire-fighting and ambulance company is looking towards a flotation.

H1 might be a busy one for healthcare IPOs - Nordic healthcare group Ambea is also known to be considering floating and Medica, the French care home group, is likely to list.   And Netcare, the South African is looking to spin off General Hospital Group, the largest UK private hospital chain, in a flotation on the LSE.

Falck is the unique offering amongst the three and a winner.  Its targeted growth in Eastern Europe, and its emergency and ambulance services are spot on.  (Note: We very much dislike hospital based ambulance services, e.g. Apollo.  Falk is not using the hospital owned ambulance model, which is worse than a loss leader.)

But we do think the real bright spot in Falck’s portfolio is their training services.  Targeting the offshore and maritime sectors, this is where Falck’s global presence has the best opportunity for significant growth.  This growth should spill over into growth for Falck’s emergency response services……….HK


Medisave Allowed at Malaysian Hospitals

February, 2010

Might this be the Asian equivalent to “Dying in London?”

Singapore residents will be allowed to use Medisave for hospitalization and day surgeries at two hospitals in Malaysia. 

Health Management International (HMI) has set up a processing assistance to international patients seeking treatment at Regency and Mahkota.

The Johor state of Malaysia is just across the causeway from Singapore, so this is a logical, simple first step.  And this is just the type of borderless contracting that we will begin to see the world over.

But this does not indicate health plans will transport patients half way across the world for cheaper medical care. 

Singapore to Malaysia, on the patient’s own resources?  Yes. 
Singapore to Jakarta?  Ok. 
Singapore to Dubai?  Ah, no.

So, before investors start touting the next Bangkok on the Danube or a world renowned cancer center on the Niger Delta, let’s take a sober look at demographics, and the infrastructure beyond any one hospital or “medical city.”

There’s a reason why many go to Paris, Frankfurt, or London for medical care, and often times it is not the medical care that is driving the choice.

The phrase (and reality) “Dying in London” is a status event preferred by many, particularly the family members…..HK


Fortis Healthcare to Buy 23.9% Stake in Parkway for $685

March, 2007

The addition of Parkway’s 16 hospitals and over 3,600 beds in Singapore, Malaysia, Brunei, India, China and the UAE will expand Fortis’ network to 62 hospitals and 10,000 beds.

The Singh brothers (Fortis Healthcare) have been aggressively expanding their healthcare and financial services businesses through a series of buyouts.

The story here isn’t all Fortis Healthcare and Parkway, though the combination does make for a compelling story.  And, at a valuation of $2.7 bn, this is quite the story.

For us, the real story here is Khazanah Nasional and Malaysia….

As was noted in this publication, June 2007, Khazanah Nasional’s move into Parkway allowed Parkway to focus on managing and growing hospitals.

Malaysia’s healthcare sector sets the country apart from nearly all others.  With the realization, and concerted efforts to export knowledge and experience, Khazanah Nasional, the state investment vehicle of the government, choose not to allow provincial and national biases to stand in the way of sound, long term investments. 

As Parkway grew, so too did Pantai Hospitals Malaysia.  As experience was garnered by Parkway in Vietnam, (see PHM Emerging Markets Healthcare Monitor, May 2007), Brunei, India and China, so too did Malaysia’s overall healthcare sector.

Much of the emerging and frontier markets may not be able to replicate Malaysia’s healthcare model.  But we do think the structural, committed efforts to private healthcare facility (and market) development are a proven, effective path towards healthcare reform………….HK


Columbia Asia Group to Set-Up 14 Hospitals in India by 2012

April, 2010

With a focus on the rapidly-growing middle-income group, Asia's leading hospital chain, Columbia Asia Group, plans to ramp-up its operations in India by opening eight more multi-speciality community hospitals with a total capacity of 800 beds by mid-2012.

The Kuala Lumpur-based hospital chain also plans to double its headcount to around 4,600 by 2012.
The company is also coming up with a first-of-its-kind 'Neighbourhood' hospital with 28-beds, to be built in a small town near Bangalore, according to Columbia Chair Mr. Rick Evans said.

Well, were does one begin? 

Well, we do like Columbia Asia Group, and we do like hospitals with approximately 100 beds.  So we’ll start with a question:

Where is Columbia Asia going to resource the human capital required to double their current number of employees?

Very possibly Malaysia or Indonesia.

Next, 28 bed hospitals to keep costs down and ensure better administration?

As I just wrote, we like 100 bed hospitals.  150 beds too.  200 also positive.  But 28 beds?

We do hope they seriously review any strategy that may include a hub and spoke system of hospitals with the smaller hospitals feeding the technology rich (read expensive) larger hospitals.

Their middle class demographic target is great………..HK

CEE Exposure Will Hit Austrian Insurance Groups VIG, UNIQA

May, 2010

Exposure in the region of Central and Eastern Europe of the Austrian insurance groups, such as Vienna Insurance Group (VIG) or UNIQA, could drag their profitability behind, amid fewer sales, increases in fraud and currency translation losses, warns the rating agency FITCH.

Exposure in Romania of the two groups is significant, local companies of VIG generating here

15.5% of the group's CEE businesses, while UNIQA achieves over 10.5% of operations in the region in Romania.

But, UNIQA is stagnating with 5.44% Romanian market share.

Without changes in leadership look to UNIQA to pull out of Romania.  We doubt that would happen, but maybe it should.

For today’s market leaders, taking on new entry status will only buy its management a short amount of time to make good.  And rightfully so.

The Romanian insurance market, an established market with its own unique challenges, has all the definitions of a sound, long term investment.  But not for companies with 5% market share…………HK