Emerging Multinationals: The South African Hospital Industry Overseas

1. Emerging Multinationals: The South African Hospital Industry Overseas DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

2. Globalisation of healthcare • Healthcare provision remains relatively unaffected by globalisation: trade in health services constitute a smaller share of trade and investment in services than healthcare spending in total global spending (~1.3% as opposed to ~10%). • However, the opening of economies to trade and investment is affecting health systems worldwide and healthcare provision is increasingly becoming a global industry. • Data is patchy but anecdotal evidence suggests that telemedicine, medical tourism, FDI in healthcare and cross-border migration of health professionals are increasing. • Developing countries (or rather emerging economies) are an integrated part of this process DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

3. FDI in healthcare provision • Outreville (2007): very little (if any) research has been done on FDI in the healthcare sector; data is surprisingly hard to come by • The literature on trade in health services: FDI mainly flows from saturated markets in the North to emerging markets in the South • Mortensen (2008): FDI flows mainly South-South or South-North (where countries in the South are involved) • The paper presented here draws on case studies of three South African private hospital groups, which in recent years have become leading global players DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

4. The South African Private Hospital Sector • Absorbs about 60% of all healthcare spending • Serves 15-25% of population with 22% of all hospital beds • Dominated by three groups… • Netcare, Mediclinic and Life • …with a combined share of ~85%, up from ~50% in 1996 • The funders, the medical insurance schemes, are much less concentrated (>100)… • …giving the hospital groups market power • ”[The groups] have historically been characterised by conscious avoidance of price competition (…) and operated as a cartel” (Rand Merchant Bank) • But the South African market is saturated… • …venturing into related activities in the domestic healthcare market and expanding overseas represent the subsequent growth strategies DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

5. The SA hospital sector overseas – Netcare • Established Netcare UK in 2001 to bid for NHS public service tenders • Awarded four ’clinical teams’ contracts (some 15,000 procedures overall) • Awarded two ISTC contracts in 2003 (one mobile, one in Manchester: each for some 45,000 procedures over a five-year period) • Awarded three NHS walk-in-centre contracts in 2007 (London, Leeds and Stracathro: each will treat some 50,000 patients per year over a five-year period) • In 2006, Netcare acquired a controlling share (50,1%) of General Healthcare Group for £2.2bn • GHG owns BMI Healthcare, the largest private hospital group in the UK with a market share of 28.5% (48 hospitals admit 230,000 patients and treats 900,000 out-patients per year) • In 2006/2007, Netcare’s UK business contributed 52.3% (£689m) to overall revenue and 53.9% (£116m) to overall profits DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

6. The SA hospital sector overseas – Life • In 2003, Life established Care UK Afrox (later renamed Partnership Health Group - PHG) a joint venture in equal shares with Care UK • Began operation of two NHS ISTC centres in 2005 (for a combined number of some 40,000 procedures over a five-year period) • In 2006, an additional two ISTC centres began operation (each to perform 55,000 procedures over a five-year period) • In 2006, PHG’s operating revenue was £32m (profit: £2.9m), up from £25m in 2005 • Overseas activities negligible relative to its South African activities. Has not, like Netcare, used its UK activities as stepping-stone to further involvement in UK or other markets. • Life was rumoured to have been in the final round of bidding for Capio UK (a UK subsidiary of Swedish group Capio), which was sold to Australia’s Ramsay Healthcare in 2007 • According to management overseas expansion remains a priority and Life is scouting the market for possibilities DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

7. The SA hospital sector overseas – Mediclinic • Mediclinic has expanded into two overseas markets • In UAE (Dubai): Mediclinic obtained 50% plus one share of Emirates Healthcare for $53.1m in 2007 • A hospital, a surgery centre and two health clinics. With two hospitals and three clinics in pipeline, Emirates Healthcare is set to be the largest private provider in Dubai • In 2007, Mediclinic acquired the Hirslanden Group, the largest private hospital group in Switzerland for $2.4bn • With 13 hospitals Hirslanden has almost 30% of the Swiss private hospital market • In 2006 reported revenue of Hirslanden was $725m • Mediclinic derives around 50% of its overall revenue and 45% of overall profits from overseas DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

8. Conclusions • The case studies show that globalisation presents opportunities for emerging economy companies that are beyond low-value production and extends into high-value service provision • The opening of public sector services to private sector providers creates opportunities. This is likely to be a growing trend in Europe and elsewhere • The three groups have internationalised by three different paths • Netcare entered the UK market gradually by first setting-up a ‘sales office’ to manage the NHS ‘clinical teams’ and ISTC contracts, then became the largest private hospital operator in the UK through an acquisition • Life set-up a joint venture with a UK operator • Mediclinic’s Dubai investment is by and large based on ‘greenfield’ projects, while its Swiss operation was a ‘all-at-once’ takeover • The case studies imply that the ability to compete globally relies on advantages that are developed in a ‘protected’ and concentrated market. Success in the global market seem to hinge on a large and dominating private health sector at home DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES