HELIOS - German privatisation continues
Expect 5-10 German public hospitals to be privatised soon. That is the message from Joachim Weith, head of corporate affairs at Helios, one of the largest German private hospital chains. He says that recent changes in state funding means a new wave of privatisation.
Meanwhile, Helios, which is owned by dialysis giant Fresenius, says sales for the first nine months of 2008 rose 16% to €1,568 million, with organic growth at 5 % and post-tax profits up 34% at €59m. Parent company Fresenius saw adjusted group post-tax profits grow by 14 % in constant currency and by 9 % at actual rates to €324 million on sales up 11% at €8.8bn (at constant currency rates). The figures were in line with analysts' forecasts.
Helios has bought €470m of revenue from the public sector in the last three years, and Weith sees no reason why Helios shouldn't continue to hit its euros 150m a year target. Weith says the total cost of buying public hospitals ranges from 0.5x to 1.5x revenue: "Sometimes the hospital is free, but there is always a commitment to spend that sort of amount on upgrading facilities and investment."
Weith admits that the purchase of public hospitals is a big issue for some: "The Social Democrats and parties of the left don't like it, nor do certain lenders such as Bavaria."
He says that they believe that private operators are motivated more by EBIT than by patient quality.
To rebut this charge, Helios has developed what he claims is a highly sophisticated measure of medical outcome. He says it is so good that, this spring, Switzerland decided to introduce it into all its public hospitals and, recently, other private groups, such as the not-for-profit Malteser group have taken it on as well. He says: "This system is much more quantity oriented, with mortality goals, plus specific goals for specific diseases. For example, for hip replacements we record how many patients had to be treated again within two years of the operation. For every disease we have quality indicator mortalities, plus specific quality indicators."
Our Analysis: It is hardly surprising that Asklepios is the only big German group which is interested in looking abroad, whilst Rhoen Klinikum, Helios and Sana are content to plough the home furrow.
Weith puts the total hospital market at €65 billion, of which the private sector currently accounts for 11%, with the rest split evenly between not-for-profit and state ownership. If 20% of the state-owned sector is sold off, that would double the private market. Weith is keen to present Helios as a completely recession-proof stock.
He says there is no indication that the German government is looking at a move to the asymmetric model in use in France, where the state sector is paid significantly more to carry out almost any procedure than their private sector counterparts. And he is at pains to point out that Helios's patient mix exactly mirrors the mix of the German population, with around 93% treated on basic social insurance (Krankenkasse) and 7% on additional private insurance.