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Health care industry

The health care sector is one of the world’s largest industries. It is relatively insensitive to economic fluctuations compared to other sectors and has posted above-average growth over the past several years.

The main growth factors are:

  • rising medical needs deriving from aging populations
  • growing number of chronically ill or multimorbid patients
  • stronger demand for innovative products and therapies
  • advances in medical technology
  • growing health consciousness, which increases the demand for health care services and facilities

In the emerging countries, drivers are:

  • expanding availability and correspondingly greater demand for basic health care
  • increasing national incomes and hence higher spending on health care

At the same time, the cost of health care is rising and claiming an ever-increasing share of national income. Health care spending averaged 9.5% of GDP in the OECD countries in 2010, with an average of US$3,268 spent per capita. The United States had the highest per capita spending (US$8,233), as in previous years, followed by Norway (US$5,388) and Switzerland (US$5,270). Germany ranked ninth among the OECD countries with per capita spending of US$4,338.

HEALTH CARE SPENDING AS % OF GDP


in % 2010 2000 1990 1980 1970
Source: OECD Health Data 2012
USA 17.6 13.6 12.2 9.0 7.1
France 11.6 10.1 8.4 7.0 5.4
Germany 11.6 10.3 8.3 8.4 6.0
Switzerland 11.4 10.2 8.2 7.3 5.4

in % 2010 2000 1990 1980 1970
Source: OECD Health Data 2012
USA 17.6 13.6 12.2 9.0 7.1
France 11.6 10.1 8.4 7.0 5.4
Germany 11.6 10.3 8.3 8.4 6.0
Switzerland 11.4 10.2 8.2 7.3 5.4

In the wake of the global economic and financial crisis, growth rates for spending on health care in a large number of OECD countries slowed down significantly or, in some cases, even went into negative territory. Spending in Germany, however, increased by 2.6% in real terms between 2009 and 2010.

The public sector is the main source of health funding in all OECD countries, except Chile, the United States, and Mexico, where public spending was below 50% in 2010. In Germany, 76.8% of health spending was funded by public sources in 2010, above the average of 72.7% in the OECD countries, but below the over 80% public share in the Czech Republic, Japan (2009), the Netherlands, New Zealand, as well as in several Nordic countries, such as Denmark, Sweden, and Norway.

Most of the OECD countries have enjoyed large gains in life expectancy over the past decades, thanks to improved living standards, public health interventions, and progress in medical care. In 2010, average life expectancy in the OECD countries was 79.8 years. Japan has the highest life expectancy of all OECD countries with 83 years, followed by Switzerland and Spain. In Germany, life expectancy stood at 80.5 years.

Health care structures are being reviewed and cost-cutting potential identified in order to contain the steadily rising health care expenditures. However, such measures cannot compensate for the cost pressures arising from medical advances and demographic change. Market-based elements are increasingly being introduced into the health care system to create incentives for cost- and quality-conscious behavior. Overall treatment costs shall be reduced through improved quality standards and optimized medical processes. In addition, ever greater importance is being placed on disease prevention and innovative reimbursement models linked to treatment quality standards.

In June 2012, the United States’ Supreme Court upheld the health care reform, which the government had already passed in 2010. Several lawsuits have been filed in federal courts challenging its constitutionality. The reform allows for a health insurance coverage to be phased in for the roughly 46 million people – about 15% of the population – who are not insured. Basic health insurance is to be compulsory from 2014 onwards. Larger companies must offer their employees health insurance coverage, while small companies and low-income households will receive government assistance to take out health insurance.

Sources: OECD Health Data 2012; Bank research; German Bundestag, Research Papers, Health Care Reform in the USA, June 2010; Website of the White House (www.whitehouse.gov)


Our most important markets developed as follows:

The dialysis market

For 2012, the volume of the global dialysis market was approximately US$75 billion, equivalent to growth of 2% compared to the previous year in constant currency (4% in constant currency). The market for dialysis care (including renal pharmaceuticals) accounted for approximately US$62 billion in sales and the market for dialysis products for about US$13 billion.

The number of dialysis patients worldwide increased by about 7% to around 2.3 million. The following pie chart shows their regional distribution.

The prevalence rate, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region. In developing countries it can be well below 100. It averages just over 1,000 in the countries of the European Union. Prevalence is very high in Taiwan, Japan, and the United States, being well over 2,000 in some cases.

The significant divergence in prevalence rates is due, on the one hand, to differences in age demographics, distribution of renal risk factors (such as diabetes and hypertension), and genetic pre-disposition and cultural habit, such as nutrition. On the other hand, access to dialysis treatment is still limited in many countries. A great many individuals with terminal kidney failure do not receive treatment and are therefore not included in the prevalence statistics.

In the United States, Japan, and Western and Central Europe, Fresenius Medical Care recorded below-average growth in the number of patients in 2012. In these regions, prevalence is already relatively high and patients generally have reliable access to treatment, normally dialysis. In economically weaker regions, growth was above average – an indication that access to dialysis treatment in these countries is still limited but is gradually improving.

In addition to easier access to dialysis resulting in better recording of patient numbers, however, other factors also contribute to a rise in global prevalence, for example the spreading incidence of illnesses that cause renal damage such as diabetes and high blood pressure, as well as the general aging of the global population due to medical advances.

Dialysis care

Of the around 2.3 million patients receiving regular dialysis treatment in 2012, about 89% are treated with hemodialysis, while about 11% choose peritoneal dialysis. The majority of the patients are treated in dialysis clinics. There are about 33,400 dialysis clinics worldwide with an average of 70 patients per clinic.

The organization of the clinics varies significantly, depending on whether the health systems in the individual countries are state-run or private: in the United States, most of the approximately 5,900 dialysis clinics are run privately, and only about 1% are publicly operated. By contrast, about 57% of the approximately 5,400 dialysis clinics in the European Union are publicly owned. In Japan, private nephrologists play a key role, treating about 80% of dialysis patients in their facilities.

In the United States, the market for dialysis care is already highly consolidated. Taken together, Fresenius Medical Care and the second-largest provider of dialysis care − DaVita − treat over 70% of all U.S. dialysis patients. In 2012, Fresenius Medical Care maintained its market-leading position of approximately 37%.

Outside the United States, the markets for dialysis care are much more fragmented. Here, Fresenius Medical Care competes mainly with independent clinics and with clinics that are affiliated with hospitals. Fresenius Medical Care operates 1,078 dialysis clinics in 40 countries and treats more than 93,000 patients. Together, these represent by far the largest and most international network of dialysis clinics.

In 2012, the number of peritoneal dialysis patients worldwide was about 250,000. Fresenius Medical Care has a market share of about 20% according to sales. Fresenius Medical Care is the global No. 2 in this market after Baxter. In the United States, our market share was 42%.

Dialysis reimbursement systems differ from country to country and often vary even within individual countries. In the United States, the treatment costs for terminal kidney failure are covered by the public health insurers. The public health care programs, the Centers for Medicare & Medicaid Services (CMS), cover the medical services for the majority of all dialysis patients in the United States. In 2012, CMS reimbursements accounted for about 32% of Fresenius Medical Care’s revenues. Changes in the CMS rates or method of reimbursement therefore have a significant importance on our business in North America.

Dialysis products

In the dialysis products market, the most important products are dialyzers, hemodialysis machines, concentrates and dialysis solutions, and products for peritoneal dialysis. Fresenius Medical Care is the world market leader in dialysis products with a market share of about 33%, followed by Baxter with 19% and Gambro with 12%. These top three manufacturers serve about 64% of the market demand. Each of the other competitors, mainly from Japan, has a single-digit percentage market share.

Dialyzers are the largest product group in the dialysis market, with a worldwide sales volume of around 222 million units in 2012. Approximately 100 million, or almost half, were produced by Fresenius Medical Care.

Of the more than 77,000 hemodialysis machines that were sold onto the market in 2012, about 55% were from Fresenius Medical Care. In the United States more than 90% of the dialysis machines sold there were made by Fresenius Medical Care. In 2012, China was our second-largest market, where we delivered more than 5,000 new hemodialysis machines. Around half of all hemodialysis machines currently in use in China were produced by Fresenius Medical Care.

The market for infusion therapy and clinical nutrition, intravenously administered drugs, medical devices, and transfusion technology

General cost pressure in Europe has increased the importance of high-quality, cost-effective health care. This especially holds true in the market for infusion therapy and clinical nutrition. Studies show that, in cases of health or age-induced nutritional deficiencies, the administration of food supplements can reduce hospital costs by an average of €1,000 per patient through shorter stays and less nursing care.

Estimates to the European Union situation indicate that as many as 20 million individuals are at risk for malnutrition. 10% of the population over 65 years and 20% of those aged 75 to 80 years and living at home are malnourished. Annual malnutrition-related costs in the European Union are calculated to be around €120 billion.

In Europe, the total market for infusion therapy is growing at a low single-digit rate. The total market for clinical nutrition is growing at a mid-single-digit rate. Growth rates are in the high single- to double-digits in the emerging markets of Asia-Pacific, Latin America, and Africa.

Based on its own estimates, Fresenius Kabi considers its potential relevant market for infusion therapy to be about €5 billion and for clinical nutrition to be about €6 billion.

We also expect the demand for generics to continue growing. From a health economic standpoint, generic drugs are more advantageous than original drugs because of their significantly lower price and they already make a vital contribution to health care today. In our view, and judged from today’s vantage point, the focus is mainly on the pricing of patented drugs and the prescription drugs segment in the pharmacy market.

The market for IV generics is characterized by moderate volume growth, steady price erosion, and fierce competition. Growth is mainly achieved through new generics that are brought to market when the original drug goes off-patent. In Europe and the United States, the market for IV generics is growing at a mid-single-digit rate. We expect the U.S. market for IV drugs that go off-patent from 2013 to 2022 to amount to approximately US$18 billion on a cumulative basis. These figures are based on the sales of the original drugs in 2011 and do not take account of the usual price erosions for generics. We therefore see considerable growth potential for generic drugs.

Based on its own estimates, Fresenius Kabi considers its potential relevant market for intravenously administered generics to be around €10 billion.

The market for medical devices for infusion therapy, IV drugs, and clinical nutrition is worldwide growing at mid-single-digit rates. Here, the main growth drivers are technical innovations that focus on application safety and therapy efficiency.

Fresenius Kabi considers its potential relevant market for medical devices (excluding Japan) to be worth about €2.3 billion, based on its own estimates.

The worldwide market for transfusion technology is growing at mid-single-digit rates. The main growth driver is the increasing demand for products and devices that perform blood collection and processing.

Based on our own estimates, the potential relevant market for transfusion technology (excluding Japan) is worth about €2 billion.

A breakdown by region of the total potential addressable market for Fresenius Kabi is shown below:

€ in billions North America/Europe Asia-Pacific/Latin America/Africa
1 Excluding Japan Sources: German Society for Nutritional Medicine (DGEM) 2009; Ljungqvist O., Clinical Nutrition 2010, 29:149-150; Company research, market data refer to Fresenius Kabi’s potential relevant and addressable markets. Those are subject to annual volatility due to currency fluctuations and patent expiries of original drugs in the IV drug market, among others; IMS
Clinical nutrition 4.4 1.8
IV drugs 8.3 1.5
Infusion therapy 2.1 3.1
Medical devices/Transfusion technology1 3.3 1.0

€ in billions North America/Europe Asia-Pacific/Latin America/Africa
1 Excluding Japan Sources: German Society for Nutritional Medicine (DGEM) 2009; Ljungqvist O., Clinical Nutrition 2010, 29:149-150; Company research, market data refer to Fresenius Kabi’s potential relevant and addressable markets. Those are subject to annual volatility due to currency fluctuations and patent expiries of original drugs in the IV drug market, among others; IMS
Clinical nutrition 4.4 1.8
IV drugs 8.3 1.5
Infusion therapy 2.1 3.1
Medical devices/Transfusion technology1 3.3 1.0

The German hospital market

The total volume for hospital treatment in Germany was about €81 billion1 in 2011. Personnel costs account for about 61% of hospital costs, and material costs for 39%. Personnel and material costs rose by approximately 4% each.

The number of hospitals in 2011 was 2,045 (2010: 2,064). The number of beds fell slightly to 502,029 (2010: 502,749). Over the last five years, the number of beds has declined at an average annual rate of 0.2%. Nonetheless, with 6.14 beds per 1,000 population, Germany is still well above the OECD average of 3.4 (2010). The average stay of a patient in an acute care clinic in Germany fell slightly over the same period and was 7.7 days in 2011 (2010: 7.9 days). On the other hand, the number of inpatient admissions has increased. This is largely due to changing demographics. In 2011, the number of admissions increased by about 310,000 to about 18.3 million. This is equivalent to 224 admissions per 1,000 population (2010: 221). In the years 2007 to 2011, the number of admissions in Germany has risen at an average annual rate of 1.7%. The average costs per admission have increased by 3.0% on average over the five years leading up to 2011.

KEY FIGURES FOR INPATIENT CARE IN GERMANY


  2011 2010 2009 2008 2007 Change 2011/2010
1 Total costs, gross
Source: German Federal Statistics Office (preliminary results for the hospital costs analysis 2011)
Hospitals 2,045 2,064 2,084 2,083 2,087 -0.9%
Beds 502,029 502,749 503,341 503,360 506,954 -0.1%
Beds per 1,000 population 6.14 6.15 6.15 6.13 6.16 -0.2%
Length of stay (days) 7.7 7.9 8.0 8.1 8.3 -2.5%
Number of admissions (millions) 18.34 18.03 17.82 17.52 17.18 1.7%
Average costs per admission in €1 4,548 4,432 4,327 4,146 4,028 2.6%

  2011 2010 2009 2008 2007 Change 2011/2010
1 Total costs, gross
Source: German Federal Statistics Office (preliminary results for the hospital costs analysis 2011)
Hospitals 2,045 2,064 2,084 2,083 2,087 -0.9%
Beds 502,029 502,749 503,341 503,360 506,954 -0.1%
Beds per 1,000 population 6.14 6.15 6.15 6.13 6.16 -0.2%
Length of stay (days) 7.7 7.9 8.0 8.1 8.3 -2.5%
Number of admissions (millions) 18.34 18.03 17.82 17.52 17.18 1.7%
Average costs per admission in €1 4,548 4,432 4,327 4,146 4,028 2.6%

According to a survey by the German Hospital Institute (DKI), the economic situation at many hospitals in Germany worsened during 2011: 55% of the hospitals earned a surplus, 14% achieved break even, and every third hospital (31%) made a loss.

Many hospitals are facing a difficult economic and financial situation as well as significant investment needs. This is due in large part to an investment backlog that has accumulated because in the past the federal states failed to meet their statutory obligation to finance necessary investments and major maintenance measures sufficiently in the past due to budget constraints. Moreover, investment needs are mainly driven by technological advances, higher quality requirements, and necessary modernizations. The Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) estimates that the investment gap at German hospitals is about €30 billion.

According to the German Federal Statistics Office, the privatization trend in the German hospital market continued in 2011, with the share of private hospital beds rising to 17.3% (2010: 16.9%). However, as the chart shows, with a share of 48.4%, the bulk of the hospital beds continued to be in the public sector (2010: 48.6%).

According to our research, about €660 million in hospital transaction revenues were acquired in 2012.

Quality is increasingly becoming a key competitive factor for the hospital market. Transparency and comparability of the treatments for the patients and their doctors will play an ever more decisive role.

In 2011, the post-acute care market in Germany comprised a total of 1,233 clinics, almost the same as the year before. The number of beds was 170,544 (2010: 171,724). 55.2% (2010: 56.1%) of the clinics were private clinics. The share of independent non-profit clinics and public clinics increased to 26.0% and 18.9% (2010: 25.9% and 17.9%). Private clinics accounted for 66.4% of the total number of post-acute care beds (2010: 67.0%). Independent non-profit clinics and public clinics accounted for 15.7% (2010: 15.8%) and 18.0% (2010: 17.2%), respectively. The total number of admissions in Germany decreased by about 48,700 admissions to 1.93 million. The average length of stay remained unchanged at 25.4 days.

1 Total costs, gross of the German hospitals less academic research and teaching
Sources: German Federal Statistics Office (preliminary results for the hospital costs analysis 2011); German Hospital Institute (DKI), Krankenhaus Barometer 2012; OECD Health Data 2012; Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Krankenhaus Rating Report 2012


The market for engineering and services for hospitals and other health care facilities

The market for engineering and services for hospitals and other health care facilities is very country-specific and depends to a large extent on factors such as public health care policies, government regulation, levels of privatization, economic conditions, and demographics.

In markets with established health care systems and mounting cost pressure, the challenge for hospitals and other health care facilities is to increase their efficiency. Here, demand is especially high for sustainable planning and energy-efficient construction, optimized hospital processes and the outsourcing of medical-technical support services to external specialists. This enables hospitals to concentrate on their core competency − treating patients. In emerging markets the focus is on building and developing infrastructure and improving the level of health care.

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