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June 18, 2010

Healthcare M&A rapidly going global

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Folks, a few days ago I posted a few thoughts about the growth in healthcare M&A activity — and told you that I saw activity picking up in Q4 of this year. Without saying so, or even thinking about it, I pretty much assumed that we were talking about outflows of U.S. capital into other regions.

That, I’m embarassed to say, was rather myopic of me.  In fact, until today, I was completely out of touch with the pace of healthcare investments across the world. And while India is perhaps the most visible example of a globally-expanding marketplace, it’s just the tip of the iceberg.

Just check out some of the recent transactions I found just be doing a little digging:

> Indian hospital chain Fortis Healthcare plans to buy a hefty chunk (23.9 percent) of Singapore’s Parkway Holdings.

> Hospital operator Life Healthcare Group completed South Africa’s biggest IPO last week, in a deal which raised about $680 million. The company, whichowns or operates 62 hospitals and about 8,100 beds total, is hunting for properties in Turkey, Ghana and india.

> Qatar First Investment Bank, along with private equity firm Ithmar, has begun picking up healthcare and pharma/life sciences investments in the region. The first deal undertaken by the two is an investment in Abu Dhabi-based Al Noor Medical Company.

Of course, some markets will be slower than others to pick up speed — after all, healthcare systems are often intertwined with government financing schemes and local politics — but the process of global consolidation is well on its way.

June 15, 2010

Going global: The University of Pittsburgh's world-class international network

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Most American hospital leaders are looking at international markets these days. While medical tourism may not be bleeding away much revenue right now,they know it may soon. With much-cheaper services available  in India, Thailand, Costa Rica and Mexico, to name just a few locations, and a growing movement to certify the safety care along U.S. lines, it’s inevitable that American hospitals will feel the pinch eventually.

How should hospitals respond?  Well, one strategy is to jump into foreign markets, rather than wait for foreign markets to swallow them. And that’s just what the University of Pittsburgh Medical Center has done.

Few hospitals have dived into the international market as deeply as UPMC, whose facilities outside of the U.S. generate almost $100 million per year.  UPMC’s ambitious overseas programs, which employee 1,300 staffers, are a precursor of things to come, though they may also offer an opportunity to see what can go wrong when American hospitals fan out into foreign waters.

At present, UPMC operates 14 different operations in six countries, including Greece, Qatar, England, Japan, Ireland and Italy, according to a report in the Pittsburgh Post-Gazette. The UPMC overseas network, which developed over 14 years, include general hospitals, cancer centers, a transplant center and a biomedical research facility. That’s one hell of a stretch for a large hospital with an immense operation to take care of here at home.

Of course, UPMC can afford to make big bets. According to the American Hospital Directory, the 1,602-bed medical center took in $9.3 billion dollars in gross patient revenue in 2008. While its profit margin that year was a not-too-impressive 0.7 percent, most hospitals tanked in 2008, the year of the Wall Street meltdown.

To me, the real question is whether it’s practical for smaller hospitals to adopt such a strategy.  I have no guess as to what this kind of expansion costs, but it’s pretty obvious it can’t be cheap. While hulking giants like UPMC can plan for the long term, community hospitals may be too strapped to pay their bills or build much-needed facilities.

Still, the unfortunate reality is that even struggling hospitals will have to find a way to walk down this path, perhaps through partnerships if they can’t build out foreign facilities of their own. My guess is that within 10 years, hospitals that don’t are going to take it on the chin. This is no joke, folks.