Health care industry

The health care sector continued to be one of the most stable industries despite the generally difficult market environment in 2009 and was characterized by its relative insensitivity to economic fluctuations compared to other sectors.

The main growth factors for this market are:

  • rising medical needs deriving from aging populations
  • 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 additional drivers are:

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

At the same time, the cost of health care is rising and is claiming an ever-increasing share of national income. Health care spending averaged 8.9 % of GDP in the OECD countries in 2007, with an average of US$ 2,964 spent per capita. The United States had the highest per capita spending with US$ 7,290, followed by Norway, Switzerland, and Luxembourg with over US$ 4,000. Germany ranked tenth among the OECD countries with per capita spending of US$ 3,588.

Health care spending as % of GDP


in % 2007 2000 1990 1980 1970
Source: OECD Health Data 2009
United States 16.0 13.6 12.2 9.0 7.1
France 11.0 10.1 8.4 7.0 5.4
Switzerland 10.8 10.2 8.2 7.3 5.4
Germany 10.4 10.3 8.3 8.4 6.0

in % 2007 2000 1990 1980 1970
Source: OECD Health Data 2009
United States 16.0 13.6 12.2 9.0 7.1
France 11.0 10.1 8.4 7.0 5.4
Switzerland 10.8 10.2 8.2 7.3 5.4
Germany 10.4 10.3 8.3 8.4 6.0

Health care spending in the OECD countries grew at an average annual rate of 3.7 % between 2000 and 2007. In Germany, health care spending increased by 1.4 % per year on average. This is the smallest increase among all OECD countries during this period. The relatively slow growth in health care spending in Germany is partly due to cost-containment measures from past health care reforms.

On average, public sources fund 73.0 % of health care expenditures in the OECD countries, with the exception of the United States and Mexico, where public funding was lowest in 2007, at 45.4 % and 45.2 %, respectively. In Germany, 76.9 % was publicly funded in 2007.

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 2006, the average life expectancy in the OECD countries was 79 years. In Germany, life expectancy was nearly a year more than the OECD average of 79.8 years. Japan has the highest life expectancy of all the OECD countries with 82.6 years.

Reforms and cost-containment measures are the main reactions to steadily rising health care expenditures. Outdated health care structures are increasingly being overhauled and market-based elements introduced into the health care system. The aim is to create new incentives for cost and qualityconscious behavior. Quality of treatment plays a crucial role in optimizing medical results and reducing overall treatment costs. In addition, ever greater importance is being placed on disease prevention and innovative reimbursement models where quality of treatment is the key parameter.

In the United States, our most important single market in geographical terms, the government has declared the reform of the health care system to be a political priority. The goal is that over 45 million (i. e. one in every eight US citizens) currently uninsured should get access to primary health care. At present, the public health care schemes, Medicaid and Medicare, mainly insure the poor and pensioners.

Our most important markets developed as follows:

The dialysis market

In 2009, the value of the global dialysis market was approximately US$ 65 billion, with the market for dialysis care (including renal pharmaceuticals) accounting for approximately US$ 55 billion and the market for dialysis products for about US$ 10.5 billion.

The number of dialysis patients increased by about 6 % to 1.9 million. The chart shows their regional distribution:

Prevalence, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region, ranging from well below 100 to over 2,000 patients per million population (p.m.p.). Prevalence is highest in Taiwan with 2,560 p.m.p., followed by Japan with 2,430 p.m.p., and the United states with approximately 1,830 p.m.p. It averages about 1,000 in the 27 countries of the European Union. The far lower global average of approximately 360 p.m.p. 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 diet). 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. A comparison of economic output and national prevalence rates suggests that access to treatment is restricted especially in countries where GDP per capita is less than US$ 10,000 per person per year. However, the generally rising global prevalence rate suggests that more and more people are receiving dialysis treatment.

Dialysis care

By the end of 2009, there were approximately 1.9 million patients receiving regular dialysis treatment. More than 89 % of these were treated with hemodialysis, while about 11 % choose peritoneal dialysis. The majority of hemodialysis patients are treated in dialysis clinics. There are about 29,000 dialysis clinics worldwide with an average of 65 hemodialysis patients per clinic.

The organizational structures differ considerably depending on whether a country’s health care system is predominantly public or private. In the United States, for instance, most of the approximately 5,000 dialysis clinics are privately run and only about 1 % are publicly operated. By contrast, about 61 % of the approximately 5,000 dialysis clinics in the European Union are publicly owned. In Japan, about 80 % of the dialysis clinics are run by private nephrologists.

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 about 64 % of all US dialysis patients. In 2009, Fresenius Medical Care maintained its market-leading position of about 33 %.

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 769 dialysis clinics in 35 countries and treats over 63,000 patients. With that, it has by far the largest and most international network of dialysis clinics.

In 2009, the number of peritoneal dialysis patients worldwide rose by more than 6 % to approximately 203,000. Fresenius Medical Care supplies approximately 36,000 patients with peritoneal dialysis products, which is about 17 % of all patients. In the United States, its market share was 31 %.

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 more than 80 % of all dialysis patients in the United States. In 2009, CMS reimbursements accounted for about 33 % of Fresenius Medical Care’s revenues. Changes in the CMS rates or method of reimbursement therefore have a significant influence on our business in North America. Here, providers mainly compete on quality and availability.

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 32 %. The top three manufacturers have a combined market share of almost 70 %. Dialyzers are by far the largest single product group. Approximately 190 million units were sold in 2009, of which about 85 million were produced by Fresenius Medical Care. Of the approximately 65,000 new hemodialysis machines that were sold in 2009, about 55 % were produced by Fresenius Medical Care. In the United States, Fresenius Medical Care has a share of over 75 % of the independent market in these two product segments. We define the independent market as all dialysis clinics that do not belong to a major US-wide dialysis care provider such as Fresenius Medical Care or DaVita.

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

In the market for infusion therapy and clinical nutrition, therapies that offer high standards of health care, but at the same time are advantageous from an economic point of view, are increasingly gaining importance in Central and Western Europe due to the general cost pressure. 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. At the time when they are admitted to hospital, at least 25 % of all patients in Europe are suffering from nutritional deficiencies, or have an elevated risk of developing nutritional deficiencies. Much higher figures of 50 to 60 % are reported for people who require nursing care, especially the elderly. The costs caused by health-induced nutritional deficiencies are about € 170 billion per year Europe-wide.

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

Based on its own estimates, Fresenius Kabi considers its relevant market for infusion therapy and clinical nutrition (excluding the United States and Japan) to be over € 9 billion.

We also expect the demand for generics to continue growing. Generic drugs are more advantageous from health economics aspects than original preparations because of their significantly lower price and they already make a vital contribution to health care today: in Germany alone, generics accounted for over 85 % of prescriptions in 2008.

The market for intravenously administered drugs 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 preparation goes off-patent. In Europe, the market for intravenously administered drugs is growing at a mid singledigit rate. In the United States, it is growing at a rate of about 5 %. We expect the US market for drugs that go off-patent from 2009 to 2019 to grow to approximately US$ 20 billion on a cumulative basis. These figures are based on the sales of the original preparations in 2008 and do not take account of the usual price erosions for generics.

Based on its own survey, Fresenius Kabi expects its relevant market for intravenously administered drugs (without Japan) to be over € 9 billion.

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

The German hospital market

The total volume for hospital treatment (excluding research and teaching) in Germany was about € 70 billion in 2008. This was approximately one-fourth of total health care expenditures. Personnel costs account for about 61 % of hospital costs, and material costs for the remainder. Personnel costs rose by 3.4 %, and material costs by 6.3 %.

Over the last five years the number of hospitals has fallen at an average annual rate of 1.0 % to 2,083 in 2008, while the number of beds has declined at an average annual rate of 1.3 % to 503,360. Nonetheless, with 6.1 beds per 1,000 population in 2008, Germany is still well above the OECD average of 3.8 (2007).

The average stay of a patient in an acute care clinic (excluding specialized psychiatric clinics) in Germany fell overall by 0.6 days over the same period and was 8.1 days in 2008.

On the other hand, the number of inpatient admissions and the average costs per admission have increased. The number of inpatient admissions at acute care clinics in Germany declined at first after the introduction of DRG-based reimbursement. This was due, on the one hand, to a reduction in unnecessary referrals and growth in the number of outpatient treatments and, on the other, to technical changes in the admission statistics. The number of admissions has risen again slightly since 2006 and was 17.52 million or 213 admissions per 1,000 population in 2008. That was about 341,000 or 2.0 % more than in 2007. Other countries rank well below the German level, e. g. Switzerland, with 174 admissions per 1,000 population. In the last five years leading up to 2008, the number of admissions in Germany has risen at an average annual rate of 1.1 %. The average costs per admission have increased by 2.5 % on average over the last five years.

According to a survey by the German Hospital Institute (DKI), the financial situation at hospitals in Germany remains difficult: only 43.7 % of the hospitals expect to earn a surplus in 2009 (2008: 61.6 %), 26.5 % expect to break even (2008: 16.3 %), and 26.4 % expect to make a loss (2008: 19.7 %). However, the hospital sector was able to decouple economically from the poor macroeconomic situation in 2009: only 12 % of the hospitals said they had been affected by the financial and economic crisis.

Key figures for inpatient care in Germany


  2008 2007 2006 2005 2004 Change
2008 / 2007
1 Total costs, gross
Hospitals 2,083 2,087 2,104 2,139 2,166 - 0.2 %
Beds 503,360 506,954 510,767 523,824 531,333 - 0.7 %
Beds per 1,000 population 6.13 6.16 6.20 6.35 6.44 - 0.5 %
Length of stay (days) 8.1 8.3 8.5 8.7 8.7 - 2.4 %
Number of admissions (millions) 17.52 17.18 16.83 16.54 16.80 2.0 %
Average costs per admission in € 1 4,146 4,028 3,932 3,813 3,756 2.9 %

  2008 2007 2006 2005 2004 Change
2008 / 2007
1 Total costs, gross
Hospitals 2,083 2,087 2,104 2,139 2,166 - 0.2 %
Beds 503,360 506,954 510,767 523,824 531,333 - 0.7 %
Beds per 1,000 population 6.13 6.16 6.20 6.35 6.44 - 0.5 %
Length of stay (days) 8.1 8.3 8.5 8.7 8.7 - 2.4 %
Number of admissions (millions) 17.52 17.18 16.83 16.54 16.80 2.0 %
Average costs per admission in € 1 4,146 4,028 3,932 3,813 3,756 2.9 %

The difficult financial and economic situation at many hospitals has been caused by rising investment needs. This is due in large part to an investment backlog that has accumulated because the federal states have not met their statutory obligation to finance necessary investments and major maintenance measures sufficiently in the past. Moreover, the investment needs are also due to technological advances and higher quality requirements. It is estimated that the current annual investment backlog at German hospitals is about € 5 billion.

Against this backdrop, the privatization trend in the German hospital market continued, albeit on a modest scale, with the share of private hospital beds rising to 15.9 % in 2008 (2007: 15.6 %) while the share of public hospital beds fell to 49.0 % (2007: 49.4 %).

According to our research, € 504 million in hospital transaction revenues were acquired in 2009 (2008: € 408 million).

The Hospital Funding Reform Act (KHRG) that came into force in March 2009 has had an overall positive effect on the financial situation of hospitals in Germany. Nationwide, hospitals were funded with approximately € 3.55 billion in 2009. That was about 7 % more than in 2008. However, approximately € 1.5 billion of that represented the reversal of past budget cuts. For instance, the contribution hospitals were required to make towards improving the finances of public health insurers (Sanierungsbeitrag) was abolished as of the beginning of 2009: the deduction of 0.5 % on billings to public health insurers and the deduction hitherto of up to 1 % on billings under integrated health care contracts. In addition, the Federal government made funds available for investment grants under government economic programs.

The KHRG also extended the convergence phase for the final introduction of DRG-based reimbursement by one year. The convergence phase now ends as of December 31, 2009. Hospitals will then bill on the basis of standardized base rates valid throughout the particular federal state.

Quality continues to be a key competitive factor for the hospital market. The transparency and comparability of the treatments for the patients and their doctors will play an increasingly decisive role.

In the post-acute care market in Germany there was a total of 1,239 clinics in 2008, the same as the year before. The number of beds was 171,060 – 215 more than in 2007. 56.3 % (2007: 57.0 %) of the clinics were private clinics and 26.0 % (2007: 25.3 %) were independent non-profit clinics. 17.8 % (2007: 17.7 %) were public clinics. Independent non-profit clinics and public clinics accounted for 16.2 % (2007: 16.0 %) and 16.9 % (2007: 16.9 %) of the total number of beds, respectively. Private clinics accounted for 66.9 % (2007: 67.2 %). The total number of admissions in Germany rose by 3.4 % to approximately 2.0 million in 2008 (2007: 1.94 million). The average length of stay declined to 25.3 days (2007: 25.5 days).

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 differs widely from country to country and depends to a large extent on factors such as public health care policies, government regulation, levels of privatization, economic conditions, and demographics.

In established markets, where there is mounting cost pressure, the challenge for hospitals and other health care facilities is to increase their efficiency. Here there is demand especially for optimized hospital processes and technical management services, enabling hospitals to concentrate on their core competency: treating patients. In emerging markets the focus is on building and improving infrastructure.

Sources: German Council of Economic Experts – Annual Report 2009 / 10, bank research, U.S. Bureau of Labor Statistics, German Federal Statistics Office

German Society for Nutritional Medicine (DGEM) 2009, German Association of Research-based Pharmaceutical Companies (VFA), Statistics 2009

German Federal Statistics Office, German Hospital Institute (DKI) – Krankenhaus-Barometer survey 2009, Federal Statistics Office (Switzerland) 2009, OECD Health Care Data 2009, German Medical Association – Growing Trend towards Hospital Privatization in Germany

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