Developing World Healthcare Blog

You’re Not Alone Nashville!

2016 has been a difficult year for healthcare services stocks in the US, particularly with new uncertainty around the future of the Affordable Care Act. The SPDR® S&P® Health Care Services ETF is down roughly 6% YTD (after partially recovering its post-Election Day losses), well behind the S&P 500 Index’s gain of roughly 11%. Outright repeal of the ACA is difficult politically, but a long period of uncertainty around potential changes is a major overhang for this sector. As disheartening as this situation is for executives of and investors in healthcare services companies, they can take some comfort (little, admittedly) that healthcare services companies in other countries also face similar policy challenges.

For those readers unfamiliar with the US, we reference Nashville (TN) in the headline because it is home to the US’ largest cluster of (for-profit) healthcare services companies. Now for the grand tour:

India – Demonetization of 500 and 1,000 rupee notes has created challenges for private hospitals and clinics as patients scramble for alternatives. Some hospitals have noted that the disruptions are most severe for their international patients who lack access to ATMs and local banks. Private hospital groups such as Apollo Hospitals Enterprise and Fortis Healthcare likely have lost some volumes during the transition, so the question is how quickly they will recover.

South Africa – The Competition Commission has conducted the (Private) Healthcare Inquiry since January 2014, and plans to issue recommendations by mid-December 2017. According to the Competition Commission’s website, “The Commission has initiated an inquiry into the private healthcare sector because it has reason to believe that there are features of the sector that prevent, distort or restrict competition. The Commission further believes that conducting this inquiry will assist in understanding how it may promote competition in the healthcare sector, in furtherance of the purpose of the Act.” In a country where three companies (Life Healthcare, Mediclinic, and Netcare) control the vast majority of private hospital beds, this language makes company executives nervous.

Poland – The National Health Fund reduced reimbursement for cardiovascular procedures by 17% effective July 1. South Africa’s Life Healthcare, which operates a small chain of hospitals and related facilities in the country, announced a write-off equivalent to 18% of the carrying value of this business.

Switzerland – The Canton of Zurich has announced a tax proposal tied to the payer mixes of the canton’s private hospitals. One hospital, Mediclinic’s Klinik Hirslanden, would pay an estimated 70% of the revenue generated by the tax because of its high mix of private/semi-private patients. The proposal requires approval by the parliament and a referendum, so it is by no means certain. In addition, there is some concern that other cantons will copy this proposal.

Abu DhabiThe Health Authority of Abu Dhabi (HAAD) instituted a 20% co-payment for Emirati patients covered under its Thiqa and Abu Dhabi Basic plans (which together cover roughly 2 million people) for treatments in private hospitals and clinics effective July 1. Previously HAAD’s health plan(s) paid the total bill regardless of facility ownership. Services provided in public hospitals remain fully covered. Some private facilities have laid off staff in response to the changes. Others have started screening patients based on their ability to pay. The new policy has reduced volumes significantly at Mediclinic’s (yes, again) facilities.  

Thailand -- In addition to the changes above, HAAD implemented a 50% co-payment for patients who receive care outside the emirate in specialties already available in Abu Dhabi. The UAE’s government used to send 3,000 patients a year to foreign countries such as Germany, UK, US, and Thailand for treatment. We think this change not only reflects budget realities, but also the openings of new hospitals with higher-acuity services. Thailand’s Bumrungrad International Hospital has experienced the biggest impact with revenue growth decelerating to 0-2% from roughly 10% historically.

The point of this discussion is to highlight the commonality of healthcare policy challenges across the globe. The circumstances differ by country, but struggles with affordability largely underlie these developments. Further, geographic diversification usually reduces risk, but Mediclinic’s current situation (challenges in all three regions) shows that it doesn’t always work.

Best wishes for a prosperous 2017.