No other private equity house is invested in so many types of healthcare services as Slovak and Czech-based Penta Investments; private healthcare insurance, labs, primary care, polyclinics and pharmacies are all in its portfolio.
We talk to Penta partner Jaroslav Haščák.
HCE: Let’s first go through your list of investments first. The biggest is healthcare insurance in Slovakia, where you own a majority of Dovera, the largest P.H.I. in the country . You also own MediClinic, which is consolidating primary care in the Czech republic, ProCare, which is building a chain of polyclinics across Slovakia, and Alpha Medical, which runs labs in Slovakia and the Ukraine.
Plus you have Dr Max, the largest pharmacy chain in Poland, the Czech Republic and Slovakia. It is an impressive list! Why don’t we start by looking at private healthcare insurance?
JH: Sure. It is our biggest investment in health-care. I guess we have around €150m invested in the two businesses, which together have €1 bn sales.
HCE: It has been a difficult ride for you with P.H.I. in Slovakia over the last few years, hasn’t it? The social democrat government, elected in 2006, has passed laws stopping you from taking any profits from the businesses.
JH: Exactly. The previous health minister introduced the changes which emulated the Dutch system to a large extent, and meant that private healthcare insurers could compete with state-run insurers for obligatory insurance. The system was set up in 2005, and worked well for two years.
But now, after amendments in 2007, it is impossible to take out any profits.
HCE: It is a familiar story in some ways.
Healthcare reform has been very slow in Eastern Europe, hasn’t it? The Hungarians nearly introduced a similar P.H.I. system and then pulled back, and initiatives have failed in Romania and the Czech Republic as well.
The public healthcare system remains very corrupt in most of these countries, and there are many vested interests who oppose change. How do you feel about the trajectory of reform in the region as a whole?
JH: Reform has stopped, and is reversing! Voters are not prepared to take responsibility for their health and distrust the private sector, so democratically-elected governments cannot change the situation.
Actually, it is a global issue. Personally, I think we need to wait maybe 30 years, until costs on healthcare reach 30% of GDP and the system finally collapses. Perhaps people will understand and support reforms then.
HCE: But Poland, for instance, is still pursuing reform, introducing financial responsibility into the public sector hospitals and allowing some hospital privatisation.
JH: I’d bet you a good bottle of wine that it’ll stop, just like in the Czech Republic, Slovakia and Hungary!
HCE: And yet you remain optimistic about the sector. You are looking for acquisitions.
JH: Yes! Our healthcare businesses, despite the recession, continue to grow 10-15% annually, and we can still make acquisitions. Banks will still lend us 3-4 times EBITDA against healthcare businesses.
We just won’t invest in the really politically sensitive areas, such as hospitals and private healthcare insurance. We are planning a lot of acquisitions to existing businesses.
HCE: So tell me about MediClinic in the Czech Republic. I am fascinated by what you are trying to do there! It is the only large scale attempt to consolidate primary care in the Accession countries.
JH: Well, in less than a year, we have bought 130 family practices, almost all of which are solo GPs, most of whom are retiring. We want to build that up to 1,000 in two years’ time.
HCE: So how do you make money out of it? By replacing the GPs who own the practices with salaried doctors?
JH: No, not at all. We are not looking to make any savings like that. Rather, we think that by consolidating the back office we can consolidate our buying power and cut all the expenses in a relation to services by 10%.
Also, we can start offering value-added services to patients, such as consultations over the phone and the ability to have prescription drugs delivered to the home. We think these kind of services from a consolidated call centre might be taken up by 15% of patient, who would be happy to pay extra for them.
HCE: Aren’t you worried about political repercussions from the socialists, who won the regional elections last autumn?
JH: No, not really. The GPs we are buying are already running their own businesses. All we are doing is consolidating the market.
HCE: And your polyclinic chain, ProCare, in Slovakia?
JH: This is a different model again. Here we are grouping all outpatient care under one roof.
We now have 8 centres and sales of €17m, and we want to build that to 12 centres in the dozen biggest cities in the country and sales of €50m. The polyclinic model is very effective, and we are looking to acquire in Poland and Romania. We have state-funded patients, but patients can also take out a subscription of between €100-€400 a year for treatment; some companies do this for employees, but it is 90% individual patients.
HCE: And you are also trying to grow Alpha Medical?
JH: Yes, here we are going to make acquisitions in Poland, Romania and Bulgaria. We are looking for people who want to sell, join us and become part of the Penta family.
