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Max Hotopf

The next frontier – the German outpatient sector


The outpatient sector in Europe, long fragmented into millions of providers, is the new frontier for consolidation. And no market is bigger than Germany where medical offices accounted for €51.5 Billion of expenditure in 2016 and statutory insurers spent €13.7 Billion alone on dentistry. Many investors and entrepreneurs have the sector in their sights.

That is mainly because it is now clear that almost all forms of outpatient care can be consolidated, despite regulations designed to ensure that these businesses remain owned by medical professionals. All you need is to create a two-tier shareholder structure in which the partners are professionals, but services are provided by an investor-owned vehicle. To go nationwide, you need to buy a small hospital. The penny on this has dropped in the last five years, along with the realisation that, properly organised, there is big money in outpatient.

Andre Schmidt, CEO of Median, the biggest inpatient rehab chain, says that the excitement is tangible in the outpatient sector. “There is a new generation of far more entrepreneurial doctors and many family offices and private equity are piling in.”

We look at the imaging services sector here where there are at least half a dozen identifiable players. The same is true in dentistry. We are told that the main reason EQT paid so much for the Pan-European dentistry Curaeos platform is that it was already active in the vast German market.

And then there is ophthalmology, where the auction of the Ober Scharrer chain is being watched closely. Tim Clover, a former CEO of the Optegra chain and now at Rayner, a maker of intraocular lenses, reckons that in Germany the top three players – Artemis, Ober Scharrer and Optegra – together have less than 10pc of the market.

Low margins also deter investors. Schmidt says that rents are rising and margins are low particularly in small facilities. “We get paid less and we can only make money five days a week. Inpatient rehab rates are higher and we get paid 7 days a week.”

Yet Schmidt says chains make sense. “They allow costs to be spread, more complex services to be offered, with a wider range.” It is only in the last few years that the details of many of these business models have been explored. In imaging, for instance, we are now told that by devoting each facility in an area to a particular piece of human anatomy, you can abolish setting up times thus enabling 10-14 patients to be seen an hour. Patients are also willing to travel a long way to attend a specialist centre.

You can also tie a chain into a facility such as a lab, thus catching a referral stream. That is the rationale behind Medicover’s recent expansion.

What really attracts is the size of the sector. Take dentistry. Include private insurance and the sector is over €17bn. That is just about twice the UK dentistry market and more than twice the size of the UK private hospital market.

So far one group has been absent from the feeding frenzy – the big German hospital groups. That may be about to change in the latest round of deals. But their absence may reflect an abortive early foray which saw Rhoen and Helios buying up doctor seats to gain patient flow. That led to a powerful backlash from outpatient doctors and the groups have not come back in a big way since. We’d be willing to bet that this will change as conditions tighten for their inpatient work.

Max Hotopf is the Editor and CEO of Healthcare Business International. He has previously worked for the Daily Mail and has written for the Financial Times, The Telegraph and The Guardian. A Durham University graduate, he set up the business in 2008. He is particularly interested in healthcare reform, brand and the impact of the web on patient choice and behaviour.

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