Expect a 'big bang' in Germany, as funding cuts force municipal, Länder and university hospitals towards the private sector, forecasts Rhoen Klinikum, the biggest German private hospital operator, with 48 hospitals nationwide. As a result, it expects prices to fall, and to see a return to the wholesale privatisation witnessed in the early 2000s.
A proposed injection of €3bn this winter will not make a serious difference, and federal elections in 2009 will "see no fundamental changes, as there is no political courage," said Rhoen Chief Executive, Wolfgang Pfoehler.
Sales rose 4.9% to €1.59bn, with net profits ahead 2.6% at €82.9m, with the smaller profit hike being blamed on changes in funding from the government and increased energy and staff costs. Rhoen confirmed 2008 sales of €2.1bn for the full year, and net profits of €123m, and forecasts €2.3bn and €130m respectively for 2009.
Sandwiched between rising staff costs - 3% in 2008 and 5% in 2009 - and falling trade tax revenue as the economy slows, many public hospitals will be sold to the private sector.
Rhoen, which took over the University Hospital of Giessen and Marburg in 2006, seems to have set its sights on more university hospitals and their skill and research base.
Director Gerald Meder said: "Until recently, the state paid half the cost of any new investment in university hospitals. That is now dead, which means university hospitals cannot invest as they should. This means privatisation becomes an attractive alternative."
Rhoen sees university hospitals as important to its model. For instance, it is leveraging the expertise at Giessen and Marburg by linking 9 hospitals to Marburg's oncology skills. Meanwhile, across the group, Rhoen has sought to offset higher costs by providing a wider range of services and expanding those, such as cardiac problems in old age, where there is heavy demand.
Rhoen is also committed to moving from being "a hospital operator" to being "a classic provider of healthcare", following the deregulation of Medizinische Versorgungszentren (MVZ), or ambulatory care units - either family doctor practices or ambulatory specialist centres.
The company quotes the Head of the Expertise Committee of the Federal Government on the need to remove barriers between primary and secondary healthcare. Rhoen now has 18 MVZs, with 55 practices.
Rhoen is restructuring to ensure maximum synergy between MVZs and its hospitals, following the implementation of electronic records. Doctors are being incentivised to work across both types of units, and the ideal is that one doctor can oversee the patient throughout his or her treatment.
Our Analysis: Throughout the presentation, there was a big stress on building new services for which there is high demand. For example, the cardiology unit in Leipzig focuses on heart problems in old age, and has seen double digit growth, with the operating theatre working dawn to dusk 6 days a week. Rhoen is now upping its capacity. Equally, micro surgery at Nienburg is up over 50%.
Rhoen now faces competition for public sector hospitals, not only from traditional competitors such as Asklepios and Fresenius's Helios unit, but also from rehabilitation groups, such as Marseille, which are keen to move into the more lucrative hospital market.
But Rhoen is well-placed. For starters, as JP Morgan pointed out in a recent analyst's circular, Fresenius has far more debt. Rhoen probably has more credibility than its competitors, following the acquisition of Giessen and Marburg.
What comes across from the presentation is the freedom that Rhoen enjoys in the German Bismarckian insurance system. German private hospitals are free to compete across the board on an almost completely level playing field with the public sector.
It is fascinating, listening, to realise just how much of a market this is - how services for which there is a high demand can be expanded, and how Rhoen seems to be free to configure the relationship between hospitals and ambulatory centres.
In this context, Germany is really alone in Europe, as in France the government pays the private sector less for each procedure than the public sector. Small wonder Rhoen, like Helios, has no plans to look outside Germany!
