Public Services International Research Unit (PSIRU)



    PRIVATE INVESTMENT AND INTERNATIONAL
 FINANCE CORPORATION INVES...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                                                  11/...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                   11/03/02




EQUITY INVESTMENTS WITH A GLOBAL DIME...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                              11/03/02




TABLE 1 INVESTMENT FUNDS, ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                    11/03/02




Newbridge Latin America (NLA)       ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                 11/03/02




Table 2: COUNTRIES, COM...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                   11/03/02




alliances. Table 2 shows the range of...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                  11/03/02




a partner. UnitedHealt...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                11/03/02




CDP International
Caisse...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                11/03/02



managed care company     ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                  11/03/02




healthcare provider. A...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                               11/03/02




conglomerate in the Phili...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                        11/03/02




Medicover
ORESA Ventures is an a...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                            11/03/02




TABLE 9: AFRICA IFC INVESTME...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                  11/03/02




Mwaiwathu Private           $0.77 equi...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                              11/03/02




TABLE 10: ASIA IFC investm...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                          11/03/02




TABLE 11: CENTRAL/ EASTERN EUR...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                11/03/02




TABLE 12: LATIN AMERICA ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                 11/03/02




TABLE13: LATIN AMERICA ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                  11/03/02




An analysis of International Finance C...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                   11/03/02




Two projects involve ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                 11/03/02




together with the Netherlands Developme...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                   11/03/02




problems is also becoming a global he...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                  11/03/02




Zealand, Canada and Australia about fu...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                  11/03/02




A third source of futures thinking for...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                            11/03/02




TABLE 16: COMPANIES RUNNING ...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                                 11/03/02




Merrill Lynch Global Fu...
PRIVATE FINANCE CAPITAL IN HEALTHCARE                                            11/03/02




               treatment and...
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EQUITY INVESTMENTS WITH A GLOBAL DIMENSION.doc

  1. 1. Public Services International Research Unit (PSIRU) PRIVATE INVESTMENT AND INTERNATIONAL FINANCE CORPORATION INVESTMENT IN HEALTH CARE – FROM CURRENT LINKS TO FUTURE PRIVATISATION by Jane Lethbridge j.lethbridge@gre.ac.uk This paper is part of healthcare privatisation research funded by Public Services International (PSI) Public Services International Research Unit (PSIRU) School of Computing and Mathematical Sciences, University of Greenwich, 30 Park Row, London SE10 9LS U.K. Email: psiru@psiru.org Website: www.psiru.org Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-8665 Director: David Hall Researchers: Kate Bayliss, Steve Davies, Kirstine Drew, Jane Lethbridge, Emanuele Lobina, Steve Thomas, Sam Weinstein The PSIRU is part of the School of Computing and Mathematics in the University of Greenwich, London. PSIRU’s research is centred around the maintenance of an extensive and regularly updated database of information on the economic, political, financial, social and technical experience with privatisation and restructuring of public services worldwide. This core database is financed by Public Services International (PSI), the worldwide confederation of public service trade unions. www.world-psi.org
  2. 2. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 PRIVATE INVESTMENT AND INTERNATIONAL FINANCE CORPORATION INVESTMENT IN HEALTH CARE – FROM CURRENT LINKS TO FUTURE PRIVATISATION..........................................................................................................1 EQUITY INVESTMENTS WITH A GLOBAL DIMENSION....................................3 TABLE 1 INVESTMENT FUNDS, PRIORITIES AND INVESTMENTS.........4 Table 2: COUNTRIES, COMPANIES AND VENTURE CAPITAL FUNDS.....6 United Health Capital group/ Latin Health Fund...........................................................6 GE Equity.......................................................................................................................6 Venture capital funds..................................................................................................7 TABLE 3 CDP INTERNATIONAL - GSSLA......................................................8 CDP International ......................................................................................................9 TABLE 4: LATIN HEALTH FUND.....................................................................9 Latin Health Fund.....................................................................................................10 TABLE 5: ASIA RENAL CARE. LTD (ARC)...................................................11 Asia Renal Care........................................................................................................11 TABLE 6: EUROMEDIC....................................................................................12 Euromedic................................................................................................................12 TABLE 7: MEDICOVER....................................................................................12 Medicover.................................................................................................................13 TABLE 8: SALUTIA...........................................................................................13 Salutia.......................................................................................................................13 INTERNATIONAL FINANCE CORPORATION .....................................................13 TABLE 9: AFRICA IFC INVESTMENTS 1996 -2002 www.ifc.org/projects...14 TABLE 10: ASIA IFC investments 1996-2001 (www.ifc.org/projects/)............16 TABLE 11: CENTRAL/ EASTERN EUROPE IFC Projects 1996-2001...........17 TABLE13: LATIN AMERICA IFC project NOT FOR PROFIT HOSPITALS 19 MULTI LATERAL INVESTMENT GUARANTEE FUND (MIGA)........................21 TABLE 14: Multi-lateral Investment Guarantee Agency (MIGA) - Brazil.........21 TABLE 15: Multi-lateral Investment Guarantee Agency (MIGA) - Bosnia.......21 PRIVATE SECTOR DEVELOPMENT......................................................................22 HEALTH FUTURES AND THE PRIVATE SECTOR...........................................22 RENAL HEALTH CARE............................................................................................25 TABLE 16: COMPANIES RUNNING DIALYSIS CLINICS, January 2001....26 TABLE 17: THREE RENAL CARE COMPANIES...........................................27 www.psiru.org 2
  3. 3. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 EQUITY INVESTMENTS WITH A GLOBAL DIMENSION The purpose of this paper is: • To show the type of health care investments being made by the venture capital and private equity sector • To identify links between health care multinational companies and investors • To analyse International Finance Corporation (IFC) and Multi-lateral Investment Agency (MIGA) health care projects Corporate strategies in health care are influenced by how private health care companies view potential demand for health care services. Venture capital and private equity capital are two sources of private sector investment that are used to develop private companies, which are not yet publicly listed companies. The priorities for this type of investment can be seen as an indicator of future trends in the private health care sector. An analysis of venture capital and private equity investment priorities in health care will show how health care is viewed by the private sector. An analysis of International Finance Corporation (IFC) health projects highlights the links that exist between sources of development finance, private investors, and health care companies. www.psiru.org 3
  4. 4. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 1 INVESTMENT FUNDS, PRIORITIES AND INVESTMENTS NAME Country INVESTMENT PRIORITIES INVESTMENTS Credit Suisse Global Health care Switzerland Worldwide, in mainly large to middle range Companies which operate in the fields of Fund capital companies - health care pharmaceuticals, hospital supplies, medical www.csam.com technology and biotechnology or those which provide services to the healthcare industry Advent International USA Early stage venture capital and later stage Companies that it has invested in include health care www.adventinternational.com private equity operations. Target sectors companies in Singapore, Bangkok, UK. include financial services, business • UK – Independent Care Ltd – private hospital services, specialty retail, chemicals, media, group pharmaceuticals, software/information technology, telecommunications, health • Thailand – Thonburi Hospital Co., Bangkok – private hospital care/life sciences and energy. • Singapore – Transmedic Pte Ltd, - medical equipment, distribution and renal care services MPM capital www.mpmcapital.com USA Bioventure and bioequities family of funds Health care companies in the US and Europe, including health care innovations particularly biotechnology, biopharmaceuticals, and medical devices Polaris Ventures USA Capital partners investing in medical 60 companies, mainly in the US but also in Iceland www.polarisventures.com technology and life sciences (genetics) and Israel TA associates USA A growth capital company that invests in A range of health care companies including Hospital www.ta.com/investments/ many sectors including health care services Group of America, Inc, a psychiatric hospital group, and health care technology which was sold in 1999 to Universal Health Services, a large health care provider with hospitals in the US and France. United Health Capital group USA Invests in 5 venture funds including Validus United Health Group is a strategic partner of the www.unitedhealthgroup.com/uhcapit Partners Latin Healthcare Fund al With some capital invested through Validus Partners (United Health Group is a partner). www.psiru.org 4
  5. 5. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Newbridge Latin America (NLA) USA Established in 1996 to make private equity Investments in Salutia – a health care connectivity Also Newbridge Andean Partners LP investments in Latin America company based in Argentina and Brazil. Link to Aqua Investment Texas Pacific Group linked to Oxford Health Plans NAP Acquisition/Newbridge Latin America Fidelity Ventures Far East (FVFE) Based in Hong Kong, FVFE’s purpose is to One of its main investments in health care is in Asia http://www.fidelityventures.com/por extend the reach of US based venture Renal Care Ltd (ARC) www.asiarenalcare.com which tfolio/busserv/frameshealth/asia_ren activities to a part of the world that it is the leading provider of kidney dialysis and related al_care.htm considers has experienced unusual growth services in Asia Pacific region. It has 20 centres in encompasses all of Fidelity’s Venture and produced a wide range of investment Asia and 12 affiliated centre in the US. Based in the Capital investing activities in Asia. opportunities. FVFE has made investments Philippines. It has a network of centres in Hong Kong, in healthcare services, telecommunication Taiwan, Malaysia, Philippines, Singapore, Japan, and services, pharmaceuticals, software the US (Satellite dialysis centres?) development, and consumer service Asia Renal Care Ltd is the health care subsidiary of businesses. Ayala Corporation and ARC – joint venture. Shareholders are: Fidelity Far East Ventures, Satellite Group, Investor AB – a Swedish investment group, 3i, Walden Group, Equitable Life www.psiru.org 5
  6. 6. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Table 2: COUNTRIES, COMPANIES AND VENTURE CAPITAL FUNDS COUNTRY COMPANY FUND UK Independent Care Ltd – private hospital Advent International group Thailand, Bangkok Thonburi Hospital Co. – private hospital Advent International Singapore Transmedic Pte Ltd, - medical equipment, Advent International distribution and renal care services US and France A range of health care companies including TA associates Hospital Group of America, Inc, a psychiatric hospital group, which was sold in 1999 to Universal Health Services, a large health care provider with hospitals in the US and France. Israel, Iceland, US 60 companies involved in biotechnology Polaris Ventures Brazil, Argentina Salutia – a health care connectivity Newbridge Latin company. America (NLA) Chile, Brazil, Mexico International Hospital Corporation United Health Capital group/ Latin Health Fund Health care companies, US and Europe MPM capital particularly biotechnology, biopharmaceuticals, and medical devices Euromedic – leading provider of diagnostic RPM Partners Hungary, Poland, Bosnia imaging services and distribution and A privately held Dutch tendering services in hospitals in Hungary investment company GE Equity Dresdner Kleinwert Benson private equity fund Hungary, Poland, Bosnia, Euromedic – leading provider of diagnostic Global Environmental Chile, Mexico, Brazil imaging services and distribution and Fund tendering services in hospitals in Hungary Hospitals, pharmacies and laboratories in Latin America Argentina, Brazil Salutia – a health care connectivity UBS Capital company Merrill Lynch Global Emerging Markets Philippines, Hong Kong, Asia Renal Care Ltd Fidelity Ventures Far Taiwan, Japan, Singapore East (FVFE) Table 1 shows the priority investments for a small sample of equity investors, some of the relationships between private investors and multinational companies and the global reach of some of these investment www.psiru.org 6
  7. 7. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 alliances. Table 2 shows the range of countries that private equity investments invest in. Venture capital is invested in small and or young companies, often high risk, in return for equity ownership. Venture capitalists supply capital to companies that could not get the funds by listing on the stock market or borrowing from banks. In return for taking the extra risk, the venture capitalists look for substantial equity, a seat on the board, and possibly increasing their equity stake if performance targets are not met. Sometimes, they provide management and financial support to companies, as well as just money. They will look for an exit through a trade sale or a flotation of the company within 2-5 years. Venture capital is also known as 'risk capital'. Private equity investments are made to more established private sector companies, which are not yet publicly listed companies. A group of 8 venture capital and equity investment companies out of a total of hundreds of funds, give an indication of the type of health care activities that have received investment funds in the last 2-3 years. This is also combined with details of venture capital and equity investment trusts that are involved in investing in International Finance Company health projects (Tables 1 and 2). These reflect some of the changing health profiles in some regions with an increase in non-communicable diseases. The main investment areas of equity investments are: 1. e-health / health connectivity – use of internet and information communications technologies 2. Telemedicine – using information communications technology to transmit information and advice about treatments 3. Biotechnology – gene therapy 4. Pharmaceuticals – drugs needed for chronic conditions, CHD/CVD, cancer treatments, mental illness 5. Medical devices / diagnostic equipment e.g. treatment for kidney diseases 6. Health care services E-health and health connectivity covers the use of internet and information communications technologies for improving a) insurance health care invoicing and payments, b) providing access to research/ information for patients and practitioners and c) linking patient records to practitioners and health insurance companies. Venture capital funds TA Associates is a growth capital company and has investments in a range of health care companies including Hospital Group of America Inc, a psychiatric hospital group, which was sold in 1999 to Universal Health Services, a large health care provider with hospitals in the US and France. Multinational health care companies also invest funding in private investors, for instance, the UnitedHealth Capital group invests in 5 venture funds and some is invested through Validus Partners, of which United Health Group is www.psiru.org 7
  8. 8. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 a partner. UnitedHealth is a health care company based in the US with some international operations. Some more specific examples of how private equity investment is linked to health care companies are outlined below: • CDP International • Latin Health Fund • Asia Renal Care Ltd – Fidelity Far East Ventures • Euromedic • Medicover – Oresa Ventures • Salutia TABLE 3 CDP INTERNATIONAL - GSSLA Caisse de dépôt et Three categories of CDP Capital invests in public placement du Québec activity: companies (publicly traded shares – (CDP) “societies ouvertes”) including: CDP Capital • Negotiated • Aetna Inc www.lacaisse.com investments • Fresenius and Fresenius C$105 billion of assets • Portfolio Medical Care AG under management managements • HCA The Healthcare • Real estate Corporation Subsidiaries : management • Health South Corporation • CDP Private Equity • Companhia Saneamiento • CDP Real Estate Basico de Sao Paulo (SABESP). • CDP Global Asset Management CDP PRIVATE EQUITY Subsidiaries include: CDP Capital CDP Capital d’Amerique In 2000,CDP Capital d’Amerique in d’Amerique offer financial services and conjunction with BC Partners, Financing for medium to support to made a $89m investment in large businesses Financial institutions, General Healthcare that manages distribution and services, a network of private hospitals in manufacturing, energy, UK infrastructures and natural resources CDP Capital CDP Capital International CDP Capital International, through International invests in funds and Accès Capital International, is offers services to directly in growth investing U.S.$2.5 million in GSSLA Quebec companies companies in Europe, Asia Inc., a Latin American subsidiary of involved in international and Latin America. It also Générale de Services Santé N.A. expansion projects manages private equity Inc. (GSS), which owns and CDP Capital funds in emerging markets operates eight long-term health International set up – in partnership with local care facilities and senior citizen CDP Access Capital teams. CDP Capital homes in Québec in addition to International which International has a offering home care and support offers financing portfolio of 56 investments services. arrangements to valued at more than C$1.3 Quebec companies billion wanting to operate globally www.psiru.org 8
  9. 9. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 CDP International Caisse de dépôt et placement du Québec (CDP) International is one of the largest investment companies in Canada. CDP International is one of its private equity subsidiaries. Access Capital International was set up by CDP International. It is investing in GSSLA through GSSNA, a subsidiary of Generale de Sante, one of the largest health multinational companies based in France. GSSNA – North America – operates eight long-term health care facilities and senior citizen homes in Québec in addition to offering home care and support services. GSSLA is a subsidiary of GSSNA and operates in Venezuela and Chile. This presents an interesting example of an investment fund investing through subsidiaries of a multinational healthcare company. This investment was explained by CDP Capital International’s President, Jean Lamothe who said "The World Bank has identified health care in Latin America as a sector suited for restructuring and development. Our investment, through Accès Capital International, will enable GSSLA to position itself competitively by forming strategic alliances with local partners to take advantage of management opportunities as they arise." (CDP press release, Wednesday December 27th 2000 http://www.cdpcapital.com) GSSLA intends to pursue its development, notably by expanding into Argentina and Mexico over the short term as outlined in 2001. GSSLA Inc. operates various hospitals and clinics in Venezuela and Chile on its own behalf or for third parties. For example, in 1997 it obtained a contract to manage Venezuela's Coromoto Hospital, a 150-bed multidisciplinary establishment owned by the oil company Petroleos de Venezuela SA. In Chile, GSSLA is the sole manager of the largest private hospital in the country's second-largest health region. An example of CDP’s investments in European based health care companies can be seen in the investment by another private equity subsidiary of Caisse de dépôt et placement du Québec called CDP Capital d’Amerique. In 2000, together with BC Partners, it made a $89m investment in General Healthcare, a company that manages a network of private hospitals in UK. CDP also has a large property portfolio and has recently started to rent office space in Paris to Vivendi. TABLE 4: LATIN HEALTH FUND ORIGINS LIMITED PARTNERSHIP STRATEGIC PARTNERSHIPS The Latin Health Fund The Latin Healthcare The Latin Health Fund has five strategic (www.latinhealthfund.com) Fund is a limited partners is part of Humana Ventures partnership, sponsored www.humanaventures.com, by : HealthSouth -(bought by AdvantageHealth the venture capital arm of • Ascendant Corporation) – one of the largest providers of Humana Inc. a large US Health health services in the US which also has a www.psiru.org 9
  10. 10. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 managed care company International network of health services worldwide for (AHI) American policy holders • Global Humana - a supra-regional managed care Environmental company Fund (GEF) Interamerican Investment Corporation (IIC) affiliated to International Development Bank and provides “in region” support to LHF in the investment process UnitedHealthcare – an HMO (also investing through Validus venture capital company) Chase Capital Partners a global private equity investment company. Latin Health Fund is a Three major investments are: private-equity investment Consortio International Hospital SA – /International Hospital fund which invests in Corporation - a hospital company that operates in Central America healthcare companies in Farmacias Ahumada SA is the largest retail pharmacy in Chile Latin America. Delboni Auriemo Medicina Diagnostica Ltda (Delboni) is the largest clinical laboratory and diagnostic imaging company in Sao Paulo. Latin Healthcare Fund has $60 million of committed capital available to make direct investments of Latin Health Fund Humana Inc, a US managed health care company has a venture capital arm called Humana Ventures. The Latin Health Fund is a specific fund of Humana Ventures, which has three specific investments in Latin America: • Consortio International Hospital SA /International Hospital Corporation - a hospital company that operates in Central America. It develops, builds and operates hospitals and has recently opened hospitals in Hermosillo, Chihuahua in Mexico and San Jose, Costa Rica. A hospital is being built in Puebla, Mexico. • Farmacias Ahumada SA is the largest retail pharmacy in Chile with more than 140 pharmacies and market share of 30%. The company has expanded into Peru and established itself as the largest chain of retail pharmacies. The company also has the first and largest (1.15 million enrollees) pharmacy benefits management company in Latin America; one of the largest private label programs in the region. It is pursuing acquisition opportunities in Brazil. • Delboni Auriemo Medicina Diagnostica Ltda (Delboni) is the largest clinical laboratory and diagnostic imaging company in Sao Paulo, Brazil in terms of number of tests and second largest in terms of revenues. With 21 outpatient units and a large processing facility, the company has approximately 11% of the Sao Paulo laboratory market. On October 7, 1999, the investor group completed the 100% acquisition of the third largest clinical diagnostic company in Sao Paulo, Bio-Ciencia Lavoisier Analisis Clinicas (Lavoisier). The Latin Healthcare Fund is a limited partnership, sponsored by Ascendant Health International (AHI) and Global Environmental Fund (GEF). Ascendant Health International is made up of health care managers who founded AdvantageHealth Corporation, a US health care provider (7000 employees) which was sold in 1996 to HealthSouth another US www.psiru.org 10
  11. 11. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 healthcare provider. Ascendant has also worked in the healthcare sector internationally, advising in Latin America and the former Soviet Union and aims to add value to the Latin Healthcare Fund by applying lessons from US health care market to Latin America. Global Environmental Fund has also invested in Euromedic, a company that provides diagnostic imaging services and distribution and tendering service to hospitals in Hungary. The Latin Health Fund has five strategic partners and the range of these illustrates the linkages between investment funds, health care companies and international development investment agencies. • HealthSouth -(bought by AdvantageHealth Corporation) – one of the largest providers of health services in the US which also has a network of health services worldwide for American policy holders • Humana - a supra-regional managed care company • Interamerican Investment Corporation (IIC) affiliated to International Development Bank and provides “in region” support to LHF in the investment process • UnitedHealthcare – an HMO (also investing through Validus venture capital company) • Chase Capital Partners a global private equity investment company. TABLE 5: ASIA RENAL CARE. LTD (ARC) ASIA RENAL CARE OPERATING PARTNER JOINT VENTURE SHAREHOLDERS LTD Satellite Dialysis Center, May 1998, established a * Fidelity Far East * 20 centres in Asia - Inc (Satellite), joint venture in the Ventures Japan,Philippines * a non-profit dialysis Philippines with a * Satellite Group, Taiwan, Singapore company healthcare subsidiary of * Investor AB – and China (Hong * close links to Stanford Ayala Corporation the * 3i Kong) University leading industrial * Walden Group, * 12 centres and 1,500 conglomerate in the * Equitable Life * 12 affiliated patients in California. country with significant centres in the US interests in real estate, * conducts quality audits, telecommunications, review technical healthcare, insurance operations and organize and food. clinical programs on behalf of ARC * organises regular training programs for ARC staff in both Asia and the United States. Asia Renal Care One of the main investments in health care made by Fidelity Ventures Far East (FVFE) is in Asia Renal Care Ltd (ARC), a leading provider of kidney dialysis and related services in the Asia Pacific region. It has 20 centres in Asia and 12 affiliated centres in the US and is based in the Philippines. It has a network of centres in Hong Kong, Taiwan, Malaysia, Philippines, Singapore, Japan, and the US (Satellite dialysis centres). Asia Renal Care Ltd established a joint venture with Ayala Corporation, a leading industrial www.psiru.org 11
  12. 12. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 conglomerate in the Philippines in 1998. Other shareholders in Asia Renal Care are: Satellite Group (US kidney dialysis centres), Investor AB – a Swedish investment group, 3i, Walden Group and Equitable Life US. Renal health care is a growing area of health care. TABLE 6: EUROMEDIC Euromedic Diagnostics BV and Ownership International Dialysis Centre BV GE Equity – private equity arm of GE Capital - joint borrowers Dresdner Emerging - both 100% owned Dutch subsidiaries of Global Environment Fund Euromedic International NV, a holding RPM Partners company of the group Private investors led by Euromedic’s management Hungary International Finance Corporation 7 Private diagnostic imaging centres $13m loan to fund a $33m expansion 200,00 patients per month programme in C/ E. Europe 100-150 staff (mostly doctors) Poland 3 diagnostic imaging centres 3 haemodialysis centres 2,500 patients per month 20-25 doctors Bosnia 1 haemodialysis centres 230 patients per month 3 doctors Euromedic Euromedic Diagnostics BV and International Dialysis Centre BV are both 100% owned Dutch subsidiaries of Euromedic International NV, a holding company of the group. It operates diagnostic imaging centres in Hungary and Poland and haemodialysis centres in Poland and Bosnia. Its investors include several investment funds GE Equity – private equity arm of GE Capital, Dresdner Kleinwert Benson private equity fund, Global Environment Fund, RPM Partners a Dutch private investment company and other private investors led by Euromedic’s management. One of the non- executive Directors of Euromedic (Janusz Heath) is the head of Central and Eastern European Private Equity Dresdner Kleinwert Benson. TABLE 7: MEDICOVER Medicover offers both medical insurance Activities and a health care delivery system, to its • Health insurance for corporations clients. Medicover employs most of its and individuals physicians directly and provides health care • Health care delivery - directly through its own facilities. employs most of the physicians and Pre-paid members other health care staff in 20 Health Poland 66,000 Centres Romania 7,000 • On-site workplace facilities for large Hungary 1,700 employers Estonia 300 Sponsor IFC loan of $7m ORESA Ventures Total budget $22m www.psiru.org 12
  13. 13. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Medicover ORESA Ventures is an an example of a venture capital company becoming directly involved in health care investment, a Swedish company. It was so successful that it ceased to invest in new initiatives and transformed itself into the health care company. In 2001, ORESA Ventures S.A., an investment company whose shares are traded on the Stockholm Exchange, decided to focus its operations exclusively on the Group’s largest holding, the healthcare company Medicover. ORESA Ventures' other holdings are being divested. As a result of the new focus, ORESA Ventures' name will be changed to Medicover and it will become an operating healthcare company. Medicover is a unique health care organisation, serving Central and Eastern Europe. Medicover was established in Warsaw in 1995, and soon spread throughout Poland. Further expansion followed to Romania, Hungary and Estonia. At the end of 2000, Medicover had 75 000 pre-paid customers across 4 countries. TABLE 8: SALUTIA Salutia.com Inc (www.salutia.com) Owned by: A privately held healthcare connectivity 30 shareholders company focused on payer-provider • Merrill Lynch Global Emerging transactions Market Partners IFC Equity investment $2.5m • UBS Capital Total budget $12.5m • NAP Acquisition/ Newbridge L.America Salutia Salutia is an example of e-health or health connectivity company operating in Argentina and Brazil. It aims to make the management of medicine more effective through the use of new technologies, to improve the provision of health care through making information about the patient to be available quickly in the clinic/ surgery, to increase the consumer’s knowledge / understanding of health by providing confidential information and services. Salutia has 30 shareholders which include investment trusts Merrill Lynch Global Emerging Market Partners, UBS Capital, NAP Acquisition/ Newbridge L.America. It also has a IFC equity investment of $2.5. INTERNATIONAL FINANCE CORPORATION The International Finance Corporation (IFC) is a part of the World Bank Group. Set up in 1956, it is the largest multilateral source of loan and equity financing for private sector projects in the developing world. It promotes private sector development through: • Financing private sector project in developing countries • Helping private companies in the developing countries to access finance in international financial markets • Providing advice and technical assistance www.psiru.org 13
  14. 14. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 9: AFRICA IFC INVESTMENTS 1996 -2002 www.ifc.org/projects Name IFC loan/ total budget Project description Sponsor/ investors Hygeia, Lagos, Nigeria $581m of total budget To upgrade Lagoon hospital (40 beds) Health Partners – health management owns/ operates Lagoon $2,186,000 existing tertiary health are services and organisation based in Minneapolis. 55% shares hospital, Lagos expand managed care business owned by Prof. E.A. Elebute and 1999 Prof.O.W.Elebute. Other shareholders: UNIC Insurance plc 12% African Alliance Insurance Company (8.3%) Lion of Africa Insurance (8.3%) Polyclinique les Graces, Euro loan of $1.1m Construction and operation of a 79 bed SIMMEQ – a corporate with share capacity set Cote d’Ivoire Total budget $3.35 private hospital in Abidjan that contain up by 12 private investors (8 medical doctors) most of the major specialties. Bell Medical Centres Quasi-equity $0.75 Expansion of the Torwood Hospital and the Principal shareholders: Ltd, Zimbabwe Total budget $1.61 Redcliff Medical Centre in Kwekwe with Dr. Arikama Chyedzo – founder of Bell Medical out patients departments and upgrading Centre in Tennesse facilities. Belvedere Maternity Equity investment Belvedere Private Hospital (Private) Ltd BPH is owned almost equally by 16 doctors (12 Home, Zimbabwe $0.352m (BPH) owns the 18 bed Belvedere Maternity obstetricians, 4 paediatricians) with Total budget $1.54m Home. BPH is building a new clinic with established private practices in Harare. 40 ante/post natal beds, 2 theatres and 4 delivery wards. Radmed Diagnostic $0.22 investment Construction of a new building on Victoria 38 shareholders – individuals in various fields Centre Ltd, Lagos, Total budget Island to house its operations and acquire Nigeria $0.55 more equipment. Lesedi Private Hospital Quasi-equity Addition of a 9-bed ICU facility to Lesedi Kwachi Holdings Ltd (90%) Gauteng, Soweto, $0.267m Private Hospital's (LPH) operations. Afrox Ltd (10%) S.Africa Total budget $0.556m 1997 Eerste River Medical $0.72m equity Building and operating a 123 bed Medical Building and operating a 123 bed Medical Centre, Cape Town, S. Total budget $5.0m Centre, offering general inpatient and Centre, offering general inpatient and Africa outpatient medical care and a range of outpatient medical care and a range of specialist services. specialist services. www.psiru.org 14
  15. 15. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Mwaiwathu Private $0.77 equity MPH will build a 60 bed private hospital to Shareholders: Dr. Jack Wirima 7%, Malawi Hospital Ltd, Malawi Total budget offer general inpatient and outpatient Development Corporation 18%, Indebank 18%, 1996 $4.36m medical care Medical Aid Society 6%, Malawi Saving Bank 9%, Medical Research Institute (MRI) 7% (a Johannesburg based private clinic management company, and other private investors AAR Health Services IFC to provide equity financing. IFC's Technical Partners and/or Major Shareholders: Limited, Kenya - a participation will broaden the shareholding Mr. Bengt Beckmann, the founder and Jonas managed health care and provide the Company with credibility Jochnick, a Swedish businessman are the organization with 5 and enhance AAR's ability to enter the major shareholders. Mr. Beckmann with the clinics in Kenya & larger East African market. assistance of a professional management team Uganda runs the Company. 1998 www.psiru.org 15
  16. 16. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 10: ASIA IFC investments 1996-2001 (www.ifc.org/projects/) Name Loan/ total budget Project description Sponsors/ investors Franco-Vietnam $8.0m A new tertiary hospital in Ho Asian Development Bank, Bank for Investment and Hospital, Vietnam 2001 Total budget $40.0m Chi Minh City. Development of Vietnam, Proparco (private sector arm of Agence Francaise de Developpement) Philippines Asian Eye To establish the first centre Main sponsor : Institute (AEI) Total budget $4.2m providing a complete range of Lopez Group (the largest diversified conglomerate in services for diagnosis and the Philippines) through First Philippines management of eye diseases. Corporation –a holding company of the Lopez Group – and three other subsidiaries/ affiliates of the Lopez Group Wanjie Cancer $15m Expansion of cancer centre Zibo Wan Jie Tumor a wholly owned subsidiary of Hospital, China Total budget $59.0 includes the installation of a Wanjie Ind Co.Ltd- a flagship company of the Wan Proton Treatment System (PTS) Jie Group a non-state, limited liability company to be housed in a new 600 bed facility. Asian Hospital, ‘A’ loan $10m from own account To construct and operate a Vista Healthcare Pte.Asia Ltd Philippines ‘B’ loan $10m from accounts of 247-bed private tertiary Dr. Jorge Garcia and Ms. Evelyn Singson participating banks hospital. ‘C’ loan $5 m convertible loan Total budget $91m Apollo Sri Lanka Considering a $5m loan, and $1m To establish a 350-bed private Apollo Hospital Group of India. Indian Hospital Hospital equity/ quasi equity loan hospital in Colombo Corporation Ltd will help to design and manage the Total budget $32m project Duncan Gleneagles $7m IFC loan and equity To establish a 270-bed private A joint venture between Duncans Goenka Group, Hospital, India investment $1m hospital in Calcutta. India and Gleneagles Development Pte.Ltd Total budget $29.4 Singapore. Gleneagles Management Services Pte Ltd will manage the hospital Siliom-Gleneagles ‘A’ loan $8.3m To provide high-quality Gleneagles Hospital Company is the technical Hospital, Indonesia quasi-equity loan $3.6 hospital care to residents of partner with 30% ownership Total budget $48m Greater Jakarta seeking 70% owned by Lippo Land, Indonesian development private health care. company publicly traded MedCen Samoa Ltd ‘A’ loan $8.3m and quasi equity A start up business which will IFC’s Pacific Islands Investment facility $3.6m include 22 private bed hospital Total budget $48m www.psiru.org 16
  17. 17. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 11: CENTRAL/ EASTERN EUROPE IFC Projects 1996-2001 www.ifc.org/projects Name Loans/budget Project details Ownership/ sponsorship Euromedic Loan $13m The project involves: (i) expansion Owned by: is the leading provider of Total budget of the existing network of RPM Partners – a privately held Dutch investment company diagnostic imaging $33m Euromedic diagnostic imaging GE Equity – a private equity arm of GE capital services and distribution centres in Hungary; (ii) Dresdner Keinwort Benson private equity - a private equity and tendering services to establishment of a network of arm of Dresdner Bank hospitals in Hungary, 2001 diagnostic imaging centres in other Global Environment Fund – international investment fund CEE countries; and (iii) establishment of a network of hemodialysis centres in the region. Most centres are located in local hospitals and space is leased from the associated hospital. New Medical Centre, Loan $2.25m The new medical centre will have It is 72% owned by Scanfert Oy, a Finnish company that runs St.Petersburg, Russia Total budget a range of specialist out patient general and infertility clinics in Finland and Portugal. 2000 $9m clinics, clinical laboratories and a small surgical unit. The project will be managed by Tohtoritalo Oy, a Finnish company running family medicine clinics. Medicover offers Loan $7m The project is designed to expand ORESA Ventures (ORESA), a Swedish venture capital coordinated health care Total budget the existing Medicover operations company with interests in health care, consumer goods, and services to companies and $22m in Central and Eastern Europe distribution sectors. It is listed on the Stockholm stock individuals, serving through (i) establishment and exchange. ORESA owns 68.2% of Medicover's shares. approx. 20,000 members, operation of a network of operates clinics in Poland, outpatient clinics; (ii) development Romania, Hungary, and and marketing of new services; and Estonia 2000 (iii) upgrade of management and information systems. www.psiru.org 17
  18. 18. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 12: LATIN AMERICA IFC projects (1996-2001) www.ifc.org/projects Name of project (date Loan/ total budget Project description Ownership/ shareholders / sponsors approved) Salutia, Argentina - a Considering equity investment Providing payer/provider transactions in It has 30 share holders including privately owned $2.5 Argentina and Brazil Merrill Lynch Global Emerging Markets healthcare connectivity Total budget Partners company $12.5m UBS Capital and NAP Acquisition/ 2001 Newbridge Latin America Innovative Health $6.25 loan IHS will target areas such as homecare, 30% owned/ by the ICATU group, Services, Brazil Proposed capital budget $25m occupational and preventive medicine, controlled by the Almeida Braga Family - a holding company to prescription benefit management, public -Brazil support new ventures to and private hospitals management, 30% owned by Jose de Mello Saude (JMS) provide services for health rehabilitation centres and outsourced part of the Jose de Mello group – a care industry hospitals services such as laundry Portuguese group operating in different 1999 sectors including health Red Sanitaria ‘A’ loan $11.0 Four hospitals to be built in four tourist Red Santiaria Hospiten, a health care Hospiten,Dominican ‘B’ loan $11.0 areas of the Dominican Republic. network based in Tenerife Island, Spain by Republic Total budget $44m Dr.Pedro Luis Cobiella and family Laboratorio de ‘A’ loan $9m To establish a main laboratory centre as Owned by 19 physicians with equal Analises e Pesquias Equity investment $6 well as building 8 new collection and participation in the company’s capital Clinicas Total budget $58m diagnostic centres and renovating organised as a limited partnership. Fleury Gastao Fleury s/c Ltda existing unit. aims to become a stock company (SA). 17 1999 of the Fleury partners are also quota holders of Transinc a company which owns the land and building in which part of the existing operations are located CIMA Consorcio SA de CV, ‘C’ loan $6m to Consorcio To restructure the debt of CIMA International Hospital Corporation Mexico ‘C’ loan $7m Cima Hermosillo Hermosillo, build a medical office 1998 ‘A’loan 47m to Cima Puebla building near to Hermosillo Hospitals Total budget $20m and construct a new hospital in Puebla Hospital Privado de $9.6m loan To develop, renovate and reorganise The hospital is owned by the doctors who Cordoba (HPC), Cordoba, Total budget existing facilities, acquire new work at the hospital or families of doctors Argentina $20.2m equipment, create satellite medical who have retired from the hospital. centres, upgrade information systems and refinance short term debt www.psiru.org 18
  19. 19. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE13: LATIN AMERICA IFC project NOT FOR PROFIT HOSPITALS American British ‘A’ loan $20m Hospital ABC is a 200 bed non-profit hospital with Governed by a Board of volunteers, Cowdray Medical Centre Syndicated ‘B’ loan philanthropic objectives and whose profits must be Mexican and ex-patriate individuals IAP (Hospital ABC) Mexico $20m reinvested. It offers a range of diagnostic, medical and City, Mexico Standby loan $10m surgical services. The project involves the construction of a Total budget $82m new hospital facility consisting of out patient services and a specialised day centre (including surgery) related diagnostic services, 24 hour emergency services, preventive centre, 60 beds and medical offices. The facility will also include a welfare clinic to deliver services to the poor (within the Hospital ABC mandate). Sociedade Hospital ‘A’ loan $20m Sociedade Hospital Samariano is a not for profit institution. 64 associates including members of Samaritano, Sao Paulo, Total cost $20m The project will allow the modernisation of existing facilities the American and British medical Brazil – expansion of inpatient and outpatient facilities. and business communities – they fulfil the role of shareholders. www.psiru.org 19
  20. 20. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 An analysis of International Finance Corporation (IFC) projects in Africa shows very limited investments by private equity investors or companies but more direct personal investments by doctors. The lack of involvement of private equity investments in Africa is probably due to the lack of financial and organisational expertise as well as limited market for private health care. The main focus of investments is in the development of the private hospital sector. Investments cover the construction of new hospitals or extensions to existing hospitals. One project involves investing to strengthen a managed care company in Kenya. IFC health care investments in Asia are being made in high technology and hospital health care projects. IFC investments have been made with Asian companies that can be grouped as:- • Specific health care companies, for example - Vista Healthcare Pte Asia Ltd (acquired in 2001 by BUPA), the Apollo Group of India, Gleneagles Development Pte.Ltd. • Conglomerates, for example - Lopez group (the largest diversified conglomerate in the Philippines), Lippo Land, an Indonesian Development company which is publicly traded. The IFC hospitals projects sometimes work with a technical expertise partner which is often provided by health care management companies e.g. India Hospital Management Corporation Ltd and is separate from financial sponsorship. Two of the IFC health care projects have been mentioned earlier: Euromedic and Medicover. Both illustrate the involvement of private equity financing as well the IFC in health care projects that are developing infrastructure for health care in Central and Eastern Europe. Euromedic is developing diagnostic centres with high technology equipment to diagnose and treat non-communicable diseases, e.g. renal care. Medicover is involved in health insurance, delivery of health care services and employment of health care staff and is an example of vertical integration in health care. The aim of both projects is to expand activities into more countries. The third IFC project is to develop a new medical centre in St.Petersburg. The sponsor/ partner is a Finnish company, Scanfert Oy, that runs infertility clinics in Finland and Portugal. A Finnish health management company, Tohtoritalo Oy, will manage the project. Although the majority of IFC health care projects in Latin America are hospital developments, there are also three other types of health care project, which are indicative of future directions in health care investment. www.psiru.org 20
  21. 21. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Two projects involve companies that have been set up to manage investments and services. The International Hospital Corporation develops and manages investor-owned healthcare facilities in Latin America and works closely with the Latin Health Fund. It works with CIMA Consorcio SA de CV and hospitals that operate under the CIMA brand name. Innovative Health Services, Brazil, is a holding company that will support new ventures and early stage development companies to improve the effectiveness and efficiency of the health care industry. It is 30% owned by the ICATU group controlled by the Almeida Braga family, Brazil. It is also 30% owned by Jose de Mello Saude (JMS), part of the Jose de Mello group, a Portuguese group operating in different sectors including health and also involved in public-private health care projects in Portugal. Salutia is an e-health company that has been set up to improve health care through the use of new information communications technologies and is operating in Argentina and Brazil. Set up in 1999, it has quickly attracted equity investors, such as Merrill Lynch, Newbridge and UBS Capital as well as the IFC to invest in technology, infrastructure and human resources. MULTI LATERAL INVESTMENT GUARANTEE FUND (MIGA) The Multilateral Investment Guarantee Agency (MIGA) was set up in 1988 as a member of the World Bank Group, to promote direct foreign investment into developing countries. MIGA encourages foreign investments into countries by providing political risk insurance (guarantees) to investors and lenders. It also works to develop the capacity of countries to attract and retain investments. It supplements the work of the International Bank for Reconstruction and Development, the International Finance Corporation and other international development financial institutions. TABLE 14: Multi-lateral Investment Guarantee Agency (MIGA) - Brazil MSF Funding LLC (MSF) MSF Holding was set up by IFC initially forming a joint for financing of medical venture with DVI Inc (a company financing leasing of equipment. MIGA issued $90m medical equipment but previously owning hospitals) to guarantee for financing of form MSF Cayman. DVI Inc. is a majority shareholder of capital markets issue, providing MSF Holdings. The Netherlands Development Finance international finance at lower Co, and Philadelphia International Equities are also interest rates. shareholders. TABLE 15: Multi-lateral Investment Guarantee Agency (MIGA) - Bosnia International Dialysis Centre Banja Luka, MIGA provided $1.3m guarantee for Bosnia to set up and manage a renal dialysis International Dialysis Centers BV, based centre within an existing hospital. in the Netherlands MSF Holding was originally set up by IFC to form a joint venture with a company DVI Inc, that finances leasing medical equipment but which had previously owned hospitals to form MSF Cayman. This was based in the Cayman Islands. DVI Inc is now a majority shareholder of MSF Holdings www.psiru.org 21
  22. 22. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 together with the Netherlands Development Finance Co., and Philadelphia International Equities. MIGA has provided a guarantee for $90m for MSF Funding LLC (MSF) to fund financing of medical equipment. In Bosnia, MIGA is providing a guarantee of $1.3 million for International Dialysis Centers BV to set up and manage a renal dialysis centre within a hospital. Although the size of the guarantees are very different, both projects show how the provision of high technology medical equipment and other diagnostic and treatment facilities are investments similar to some IFC health care projects and private investment priorities. PRIVATE SECTOR DEVELOPMENT In many developing countries, there is a lack of corporate infrastructure to manage investments. As a result, many private equity funds have either developed alliances or partnerships with companies that have the capacity and skills to manage investments or have set up new companies to oversee the investment. In some cases, venture capital companies have become directly involved in running the investment activity. In this sense, venture capital investors can play an important role in developing the extent of the private sector. The International Finance Corporation also provides loans and equity investments for the development of holding companies and other forms of financial infrastructure. Many governments have investment corporations linked to international development ministries that provide support for the development of the private sector. In Norway, Sweden and Finland, the international investment companies (Norrfund, Swedfund and Finnfund) have no involvement in health care investments. In the UK, the CDC (previously the Commonwealth Development Corporation) has health care as a defined priority for investment although it has not made any investments yet. The Netherlands Development Finance Company is one of the investors in the MIGA project in Brazil. The US Overseas Private Investment Corporation (OPIC), is an independent federal agency that mobilises American capital for investment in developing countries. It has provided expertise for the Texas Pacific Group, which is linked to Newbridge LA, an investor in Latin America. HEALTH FUTURES AND THE PRIVATE SECTOR The pattern of disease is changing in many regions of the world. Infectious diseases are still major causes of mortality and morbidity in many low income countries, such as HIV/ AIDS, tuberculosis, malaria. Non- communicable diseases are major sources of mortality and morbidity in high income countries but are also becoming more widespread in low income countries. This will have major implications for health care demand and treatment in many countries. CHD/CVD and cancers require often expensive diagnostic tests and high technology treatments. The rise in mental health www.psiru.org 22
  23. 23. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 problems is also becoming a global health issue which will increase the demand for mental health services. Demographic change is also taking place in many countries with a growing ageing population. In many African countries where the incidence of HIV/AIDS in the adult population is between 10-30%, the older population is unlikely to grow as rapidly as in other regions of the world. For expanding older populations, there will be an increase in non-communicable diseases often characterised by long term chronic conditions which require long term health care. The changing patterns of mortality and morbidity and a growing older population, will influence the demand for health care. There will be a growing demand for high technology diagnosis and treatments for non- communicable disease as well as more labour intensive care for long term chronic conditions often delivered in people’s homes. This will impact on the existing costs of health care as well as the skill mix required from health care workers. In many high income countries these changes are already leading to debates on the future financing of health care and the future role of public and private provision. The main individual risk factors linked to the three main non-communicable diseases are smoking, diet, physical activity, alcohol. Preventive health strategies for non-communicable diseases tend to stress more individually focused measures such as changes in diet and increased physical exercise. These provide opportunities for private companies to provide products and services, especially in provided in partnership with health insurance companies with the aim of reducing demand for services. However factors that also influence the determinants of health, such as improved housing or increased income, are also important for reducing demand for health care services but are the responsibility of non-health sectors. They are not necessarily a source of future services for private health care companies. Demographic changes and resulting changes in the financing and demand for the health care have implications for the private health care sector and investments will be influenced by the interpretation of these changes. Investment companies often seek information on which to base their investments through private and non-profit research and consultancy centres that specialise in developing visions of the future. Futures research is used by the business sector to generate views about how economic, social, political and environmental trends will interact to shape future societies. Examples of three global consultancy groups that have contributed to developing “health futures” are outlined below. The healthcare practice of one of the largest global consultancy groups PriceWaterhouseCoopers (PWC) published a report “HealthCast 2010 Smaller World, Bigger Expectations” in 2000. It was aimed at PWC health care clients. The report was informed by a survey of policy makers, health system managers, health care employers, doctors, insurers and medical suppliers in US, UK, Finland, Spain, Netherlands, Germany, France, New www.psiru.org 23
  24. 24. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Zealand, Canada and Australia about future health trends and the implications for the health care industry. The survey results showed that the respondents felt that the amount of money spent on health care was growing in most developed countries because societies were getting wealthier. Technical advances were perceived as being able to contribute to cutting the costs of health care but were more than offset by an ageing society, increased health consumerism, biotechnology and medical advances. Survey respondents also felt that increasing costs of health care took away money for spending on other consumable goods. Although health expenditure was considered to contribute to economic growth, decreasing health expenditure was also seen as the key to economic growth. The prospect of an increasingly older population with a decreasing working population is viewed with some concern. The impact will be strongest between 2010 and 2040. The report also felt that the two major systems of health care financing – health care insurance through an employer and other systems where people have a right to health care (whether from taxation or social insurance) will converge in the future. One of the major conclusions drawn from this survey was that the customer would play a key role in health care demand in the future. Interestingly, this was seen as potentially problematic. Quality, efficiency and customer satisfaction will be key to accessing capital. Resources need to be allocated for health workers to be retrained to deal with more consumers. Insurers must stress prevention because early detection and intervention will decrease costs. This report shows that there are several underlying assumptions about the private sector view of health care futures. More demanding consumers and increased consumer spending on health care are seen as opportunities but also challenges for the future. The Institute for the Future, a U.S. futures thinktank, together with A.T.Kearney (the management consultancy arm of EDS) organised the Healthcare Future Forces Leadership Roundtable in Venice, Italy, held in June 2001. It was the first of what will be an annual by-invitation-only gathering of top business leaders representing segments cross the healthcare industry spectrum, as well as top academics in the field. The three themes considered were: • Assessing the impact of care customisation on the delivery and management of healthcare • Assessing the impact of consumerism on the management and delivery of healthcare services • Assessing the impact of information and communication technology on all aspects of the healthcare system. www.psiru.org 24
  25. 25. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 A third source of futures thinking for the private health care providers and investors is the Institute of the Americas. A meeting in July 2000 organised in collaboration with the International Finance Corporation (IFC) looked at ‘Financing Private Health Care in Latin America’. The supporting paper raises a number of issues and challenges about investing in Latin America. These issues provide a useful insight into the type of concerns voiced by the private sector about investing in health care. These relate to: • What are the appropriate criteria for equity financing? • Are the lending terms of IFC and other financiers consistent with the nature of the business? • What are the best strategies for obtaining reliable data? • How should investors determine what infrastructure (especially IT) needs to be created or imported and what elements of local health systems be allowed to continue? • How significant is the training component (to create good management skills) and how can this training be provided? Other questions deal with specific barriers to investing in medical equipment/devices, telemedicine and pharmaceuticals. The focus is on the delivery of high technology, curative care and not on locally based primary health care. The questions raised by the Institute of the Americas suggest that investing in Latin America is seen as risky because of the lack of information available about existing health care companies and the nature of the health care business. There are also doubts about the efficiency and effectiveness of the current delivery of health care. Health care investors also raised questions about the lending terms of IFC. RENAL HEALTH CARE Renal care is a growing area of healthcare and part of a very competitive market. There is evidence that companies that manufacture drugs and /or equipment for the treatment of kidney diseases are also involved in the provision of health care. Multinational companies involved in renal care have combined operations that include: • healthcare – clinics for treating kidney disease • renal products – products used during dialysis treatment • blood compound technologies and blood bank technology – This is an example of vertical integration of activities in the health care sector. www.psiru.org 25
  26. 26. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 TABLE 16: COMPANIES RUNNING DIALYSIS CLINICS, January 2001 Company Patients (share) US (share) Europe (share) Rest of world (share) Fresenius 97,000 (9%) 73,900 (26.4%) 11,350 (4.8%) 11,750 (2.0%) Gambro 47,000 (4.4%) 38,300 (13.7%) 5,400 (2.3%) 3,900 (0.6%) DA Vita 41,000 (3.8%) 41,000 (14.6%) Renal Care 16,000 (1.5%) 16,000 (5.7%) group Baxter RTS 16,000 (1.5%) 2,000 (0.9%) 14,000 (2.3%) Kurtorium fur 15,600 (1.0%) 15,600 (6.6%) Dialyse Dialysis 10,700 (1.0%) 10,700 (3.8%) Clinic Inc Patienten- 4,200 (0.4%) 4,200 (1.8%) Heimversorgung National 3,700 (0.3%) 3,700 (0.3%) Nephrology Satellite(ARC) 2,900 (0.3%) 1,500 (0.5%) 1,400 (0.1%) Braun 1,700 (0.2%) 1,700 (0.7%) Eurocare Total patients 256,400 (24%) 185,100 (66%) 40,250 (17%) 31,050 (5%) with care provided by companies Other care 823,600 (76%) 94,900 (34%) 194,750 (83%) 533,950 (95%) Providers Total no of 1,080,000 280,000 100 235,000 100 565,000 100 Patients (100%) Source: www.gambro.com Over a million people were treated for kidney diseases in 2000. About half of those treated were in North America and Europe. The breakdown of patients treated by renal care companies in regional terms shows there are several different patterns of market coverage. The two largest companies, Fresenius and Gambro have clinics in the US, Europe and Latin America/ Asia. Four companies, DA Vita, Renal Care Group, Dialysis Clinic Inc, National Nephrology only have clinics in the US. Three companies Kurtorium fur Dialyse, Patienten-Heimversorgung, Braun Eurocare, treat patients only in German speaking countries in Europe. Baxter RTS has clinics in Europe and Latin America/ Asia but not in the US although it has other production facilites in the US. Baxter RTS treats the majority of its patients outside Europe. Satellite (ARC) provide services in the US (operating as Satellite Health) and in Asia as Asia Renal Care. The majority of renal care patients are found in Latin America/ Asia but only 5% are treated by renal care companies. In the US, 66% of patients are treated by renal care companies and in Europe, 17% of patients are treated by renal care companies. There is obviously some scope for expansion in Europe and Latin America/ Asia. www.psiru.org 26
  27. 27. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 Merrill Lynch Global Fundamental Equity Research Department published a profile of the dialysis industry in September 2001 arguing that the production of dialysis products was no longer driving the industry because there is limited product growth possible as synthetic dialyses have become standard equipment (Kidney Machinations The Dialysis Industry could get bloody 11 September 2001). As a result, major companies will become service providers, for instance, running dialysis clinics, but may expand into other aspects of health care provision. Already Fresenius and Gambro had started to offer treatment for other aspects of patients’ care. This will have implications for existing health care companies. AstraZeneca is another example of a multinational drug company, which is involved in cancer care provision through Salick Healthcare,Inc which provides services for diagnosis and treatment of cancer and treatment of kidney failure. There are three major multinational companies involved in all three stages of renal health care. These are: • Fresenius • Gambro • Baxter RTS The profiles of Fresenius, Gambro and Baxter RTS show that all companies began by manufacturing kidney dialysis equipment and products but have expanded their activities to include health care provision for kidney patients in the last decade. Providing health care services is a major part of the business of Fresenius in terms of both sales and employment. TABLE 17: THREE RENAL CARE COMPANIES COMPANY FRESENIUS GAMBRO BAXTER Business Fresenius Medical Gambro Healthcare, Medication delivery, which sectors Care: – clinics and 58% sales develops technologies and services 74% sales Gambro Renal systems to improve Fresenius Kabi: - a Products intravenous medication provider of products for 35% sales delivery and distributes nutrition and infusion Gambro BCT (blood medical products therapy and components) BioScience, which develops ambulatory medical 7% sales biopharmaceutical and care blood collection and Fresenius separation products and ProServe:- Total sales for these technologies three business areas Renal, which develops services as project amounted to SEK products and provides development, 22.2 billion in 2000. services to treat end-stage consulting, and kidney disease. staff training to hospitals and other health facilities Fresenius HemoCare: focuses on blood www.psiru.org 27
  28. 28. PRIVATE FINANCE CAPITAL IN HEALTHCARE 11/03/02 treatment and infusion technology Sales • Europe 32% • Europe 28% • Europe/ Asia/ Latin • North America • North and America + 50% 57% South • United States < • South America America 61% 50% 5% • Asia, rest of • Asia-Pacific the world 6% 11% Labour 49,974 in 2000 18,300 employed in 43,000 employed worldwide force 35 countries CONCLUSIONS • The links between private equity investments and health multinational companies are strongest in Latin America and to a lesser extent in Central and Eastern Europe. • Health care investing in developing countries is seen as involving considerable financial risk. Different regions can be characterised by varied financial capacities of the private sector, which limit investment unless holding companies or health management companies are set up to spread the risk. Investments in holding companies are a first step to developing this capacity. Private equity investors and some multi-national companies are involved in this type of investment. • The International Finance Corporation invests in health care projects and is involved in extensive development of the private health care sector in many countries. Some regions are characterised by different types of investments, e.g. holding companies, although direct hospital investments are the most common type of IFC investment. • The case of the global renal care industry shows companies previously involved in equipment and product development moving into health care provision. This raises questions about a) the implications of this trend for existing health care companies, b) whether other pharmaceutical companies will become vertically integrated with health care services and c) the implications for employment of health workers. www.psiru.org 28

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