Big outsourcing contracts are a way of building marketshare fast in European public healthcare markets. And often the winners are the big healthcare groups owned by private equity groups. Think Attendo, Ambea and Aleris in Sweden in primary, domiciliary care and imaging. Think Alliance Medical in the UK and Italy in imaging.

But this is not always the case. For example, in the German lab market Labo Leverkusen has come from nowhere to grab several large outsourcing deals from public hospitals across the country by coming in at 15% of the standard PKV lab test tariff price. Marketleader Sonic has declined to compete.
Margins on outsourcing deals are hard to compute. Recently we’ve had complaints about low margins in areas, such as imaging from companies in Spain, Sweden and Norway. Margins of 8-10% sound a lot lower than the 20% plus that good labs can enjoy in countries like Italy and Germany. But often these contracts are cashflow neutral or may even be positive.

It is clear that outsourcing is going to grow dramatically over the next few years. And no wonder. Alliance Medical reckons it can increase the effectiveness of the public sector imaging centres it takes over by 30-40%. We’ve heard a figure of 20-30% for labs which have been outsourced. Above all, public hospitals gain a price tariff for the very first time when they outsource these functions. Suddenly, the doctor doing his rounds will know precisely what a specific test or image will cost his department. That, too, does wonders for efficiency!

But public sector policymakers should always seek to keep enough competitors and that means treasuring a few Davids and not being dazzled by Goliaths.