Your Care Consult

The French government has said it will seek to reduce the rate of growth of healthcare services to 2.5% in 2012, down from 2.8-2.9% in 2011. What are the implications of this?

Stephan Pichon at Paris-based adviser Your Consult said the government plans to force doctors to prescibe generics more often and to reduce drug prices. It is also looking to save several hundred million euros on laboratories and radiology. He says that the state has an accumulated deficit of some €10bn in healthcare spending.

Other sources suggest that this will lead to a larger than normal drop in test tariff prices for laboratories which normally runs at 3-4% a year.

Pichon doesn’t think that the new austerity measures will automatically lead to a transfer of acute operations from the public sector to the private sector which generally is paid around 27% less per proceedure. He said: “Such transfers are deeply political and so are very hard to predict and likely to take a long time.”

Source: Healthcare Europe / December 5th 2011

There was huge interest in healthcare as an asset class at Mipim, the big international conference for institutional property investors held in Cannes, according to Stephane Pichon, CEO of French consultancy Your Care Consult, who ran a session on the subject, comparing yields on healthcare to retail and office.

Pichon said: “The room was crammed – we had over 100 people.”

Pichon’s presentation focused on how investors could move into the class from retail and office property. He points to Confinimmo which is now targetting 50% of its real estate portfolio in healthcare with EUR1bn in Belgium and France which is now looking at Italy and Germany as well. He says Catella AG is also running a real estate fund. Having bought in Germany it is now targeting Italy and France.

He estimates there is €300bn of inventory in healthcare across Europe with just €4bn in property transactions a year.
In France he estimates that, despite compression, the yield premium of healthcare over office and retail which was 300 basis points in 2005 and 200 bps in early 2006, was probably hovering around 100 bps in 2009. But he points out that Gecimed, in its latest EUR239m deal for 31 homes achieved 6.35% which he says is still 200bps over prime office in Paris.

Source: Healthcare Europe / March 10th 2011

The story going the rounds in France is that the new healthcare regions chief task is to cut hospitals costs by a third in five years.The story going the rounds in France is that the new healthcare regions chief task is to cut hospitals costs by a third in five years.

One source said: “It has not been said publicly to the press, but this is the message I am getting from senior managers in the regions.” He added: “Officials are saying at conferences things like ‘we don’t want to kill the hospitals today’, the implication being that they might try and do so tomorrow.”

The process has already started with many small maternity wards facing closure. “Unless you are doing about one a day you will be closed,” he said. “This will extend to other types of hospital as well.”
Others expressed skepticism. Stephane Pichon at Your Care Consult said: “That may well be the target. France has to cut back. But whether it is achievable or not is another matter entirely. Local hospitals are often the biggest local employer and local politicians will fight hard to keep them.” He points out that the Minister of Health is about to spend €800m on a new public hospital in Caen (the existing one is infested with asbestos) – a move he describes as “madness”.
Our Analysis: By all accounts, it is very hard to talk to the bosses of the new healthcare regions. The bodies incorporate the work previously done by seven entities, the idea being to streamline French healthcare. Some 18 months after their formation, we are still not seeing the emergence of clear strategies.

Whether we will see truly radical change is questionable. But the word in the industry is that the regions do want to make big changes and are keen to cut costs. That should lead to a larger role fro the private sector. Whether serious cuts are achievable, as always in healthcare, is the big question.

Our sources expect the direction of travel to remain the same under the new government under premier Francois Fillon, set up on November 15, with Xavier Bertrand, former secretary-general of Sarkozy’s party Union for Popular Movement, as minister for labour, employment and health, replacing Eric Woerth. Everything hangs, however, on the presidential elections in May 2012. At the moment, right wing presidential incumbent Nicholas Sarkozy is well behind in the polls. But the socialists are split and, when it comes to the crunch, the French may well decide that France does need to cut costs. A silent majority favoured the recent pension reform.

Source: Healthcare Europe / November 17th 2010

Private equity interest has been reignited, but remains frustrated by the lack of decent management teams. It is not hard to see the attraction of care homes. The number of 85s in Western Europe is expected to almost treble by 2050 leading to big increases in demand. Alzheimer and Alzheimer like sufferers are expected to rise 50% to 1.2m in France by 2020. Hikes are particularly likely in southern Europe which has historically been adverse to the idea of care homes. Today in Italy only 2.7% of those over 65 live in specialised facilities compared to 5.4% for the UK and 6.1% for France. Yet Italy has approximately 12 million people aged over 65 compared with approximately 10.7 million in France. Growth rates are impressive. We were told that over the last 4-5 years the Spanish market was growing at 7-8% per annum for residential care and 15% for domiciliary. Growth elsewhere is much lower – 2% in France and maybe 3% in Germany.

Yet older people does not necessarily equate to more care beds. Stephane Pichon at Your Care Consulting in France says: “states will not be able to afford this burden. There will have to be other solutions involving remote monitoring.”

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France – tougher times ahead

French operators are bracing themselves for changes which are likely to mean lower margins and lower prices. Today an operator can propose a new care home to a region and then set the prices for incomers. Under the new Loi Hôpital Patient Santé Territoire which will come in this autumn it is the regions, not the care home operators, who propose where new homes are needed. This will be followed by a competitive tender, in which the proposed price charged to patients will be examined carefully.

Average prices are likely to drop, says Stephane Pichon. Korian, one of the big operators is preparing a new range at €60 a day down from an average of €75.

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The big players have been able to build or renovate and build big pipelines of future business. Nor are margins bad. Pichon puts the average at 25% but says that a full renovated asset can make 30-40% EBITDAR.

Pichon says the new law is likely to lead to a change of strategy from operators.

“It means more acquisitions within the sector and a lot of diversification.” Orpea and Korian are already get 30% or so of their sales from psychiatric and rehab and this could increase.

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International private equity is currently absent from the market following BC Partners flotation of Medica, but Pichon says most of the smaller operators have backing from small private equity or family offices. Insurers like the sector and are big investors in the listed groups.

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This means residents tend to be really ill and typically last just 18 months.

Stephane Pichon, a French observer says: “It is much more medicalised than France and many homes have kit like dialysis – the sector is more mixed.”

Of the big six groups, half are subsidiaries of the three French giants and La Villa is half French and half Italian.

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