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| Healthy Growth for Chile’s Private Clinics |
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| By Patrick Nixon |
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Demand for private medicine in Chile is expanding ahead of GDP and most major clinics boast attractive occupancy rates. However, if they are to penetrate new socioeconomic sectors, efficiency gains will be crucial.
Each year, Chile spends around US$5.5 billion on caring for its health. And of that total, an estimated US$1 billion finds its way -either directly or through a health insurance company- into the hands of a private healthcare provider, be it a clinic or an outpatient center.
And, in the coming years, that amount is expected to increase at a rate well ahead of GDP. The figures speak for themselves, says Juan Antonio Guzmán, one of the controlling investors in Clínica Indisa, a private clinic in eastern Santiago. Chile still spends less than 7% of GDP on healthcare, he points out, as compared to 8.7% in Israel, 9.2% in Portugal, or almost 14% in the United States.
That should rise gradually as prosperity increases and some forecasts suggest that Chile’s spending on healthcare could double in the not too distant future, not as a percentage of GDP, but in per capita terms. After all, according to the United Nations Development Program, Spain devotes only around 7.6% of its GDP to healthcare but, by 2001, annual per capita spending had reached just over US$1,600 in purchasing power parity terms while, in Chile, it was less than US$800.
A large chunk of that growth would probably go on private medicine. In a phenomenon already observed by private clinics, people covered by FONASA, the state health insurance plan, who can use public hospitals at little or no cost, increasingly prefer to pay extra for a private clinic.
But that is not the only reason why Chile’s private clinics are investing heavily. The country’s population is ageing fast -the 2002 National Census found that, in the previous decade, the number of over-60s had increased by 2.7% annually, more than doubling overall population growth- and that is, of course, good business for healthcare providers.
Over the next two years, Empresas Banmédica, a health insurance and healthcare conglomerate, plans to increase the number of beds at its Santa María and Dávila clinics from 430 to around 700 at a cost of just over US$40 million. Similarly, the Indisa clinic, which currently has around 100 beds, is investing US$15 million to reach 200 beds by mid-2006.
And that is also good news for suppliers of equipment and materials. Michigan-based Stryker Corporation, for example, reports that sales of its hip, knee and spinal implants, endoscopes and other products increased by 57% in Chile last year. And, building on that growth, it is preparing to install an operating room equipped for telemedicine, allowing surgeons to be in direct contact with colleagues in other parts of the world.
Industry X-ray
Chile currently has an estimated 42,500 hospital beds, of which around 11,500 correspond to the country’s 150-odd private clinics, concentrated mainly in Santiago. The large number of small clinics, and some blurring of the line between the services provided by clinics and those offered by outpatient centers, make it difficult to calculate the total sales of private clinics, but estimates suggest they are of the order of US$400 million annually.
In 2004, Empresas Banmédica, which is jointly controlled by the local Fernández León and Penta groups, reported annual sales of US$600 million (including its health insurance company in Colombia), of which the Santa María and Dávila clinics represented a combined fifth. And, together these two clinics account for close to 40% of Chile’s private hospital beds.
However, Chile’s largest private clinic, with almost 350 beds, is Clínica Alemana in Santiago’s Vitacura district. Founded just a century ago by German immigrants (although in a different part of the city), it is also one of the country’s oldest and, although it does not disclose results, is estimated to have the highest sales.
The second place in the sales league is claimed by Clínica Las Condes, which reported revenues of 44 billion pesos (some US$72 million) last year, up from just over 41 billion pesos in 2003. Founded by a group of doctors in the early 1980s, the clinic’s comfort and smart décor set new standards for Chile’s private clinics. Still controlled by its doctors -although now accompanied by local businessmen Andrés Navarro, Sebastián Piñera and Alvaro Saieh and the Banmédica group-, the 223-bed clinic has invested a total of around US$64 million, reports general manager Alfredo Schönherr.
One of the key differences between the Banmédica group and clinics like the Alemana, Las Condes and Indisa is that the latter do not own related health insurance companies (Isapres). But opinions differ as whether this lack of vertical integration is a disadvantage.
“We don’t feel at a disadvantage,” asserts Schönherr. The large client base provided for the Santa María and Dávila clinics by the Banmédica and Vida Tres Isapres is a plus, he recognizes. “But we compete by offering the best doctors and there are Isapre customers who prefer that,” he adds.
Carlos Kubik, general manager of Empresas Banmédica, denies that the group’s health insurance and healthcare businesses are, in fact, integrated. “There are some synergies, but they operate independently,” he says. And, he adds, only 50% of patients at the group’s clinics are affiliated to its Isapres.
New patients
Although most of the main private clinics are located in the prosperous residential districts of eastern Santiago, there is, in practice, considerable market segmentation. And prices vary accordingly.
While Clínica Las Condes targets mainly the top income group, Clínica Dávila, for example, focuses on the middle and lower-middle income market, drawing many of its patients from suburbs in the south and west of the city. And its prices are roughly half those of Clínica Las Condes.
“The difference isn’t in the medical attention, it’s mainly in the accommodation,” says Ricardo Cumplido, Clínica Dávila’s marketing manager. And its location -close to downtown Santiago- helps because land is much cheaper there, he adds.
The Indisa clinic -strategically placed halfway between eastern residential districts and the downtown area- also targets the middle and lower-income market, as well as higher-income groups, says general manager Manuel Serra. With revenues of US$20 million in 2004, the clinic is also reported to charge around half the price of more expensive clinics.
There is widespread consensus that the upper-income market is already well served and that most patient growth will, as prosperity increases, come from the middle and lower-middle income segments. That is a market that is also being eyed by Integramédica, a chain of outpatient centers in which U.S.-based GE Capital -one of the few foreign investors in Chile’s private health sector- is a partner.
With just ten years in the market, the company now has 14 centers in Santiago, as well as the cities of Concepción and La Serena, and has seen annual sales revenue rise from 1 billion pesos in 1994 to 37 billion pesos (around US$61 million) in 2004. Now, in a bid to cash in on the 1,000-plus surgeries that it passes on to clinics each month, it is planning to build three medium-sized clinics of its own in the north, south and east of the city, reports general manager César Oyarzo.
But, interestingly, Clínica Las Condes recently iced a plan for a US$15 million clinic in southern Santiago’s middle-class La Florida district. “After doing market studies, we weren’t convinced the demand was there; patients from La Florida tend to come to eastern Santiago when they need hospital treatment,” says Schönherr.
That, indeed, appears to be one of the differences between outpatient centers, which have increasingly located close to their clients in, for example, shopping malls, while clinics can better afford to stay put.
But that could change as the government gradually implements a healthcare reform -the AUGE plan- that seeks to ensure access to timely care for key pathologies, independently of a person’s income. Patients who cannot be attended in a public hospital within the specified time will be sent to a private clinic at the expense of the public sector, explains José Concha, the government’s superintendent for healthcare providers.
The private clinics anticipate that public hospitals, with their waiting lists, will be unable to cope with the increased pressure, providing opportunities to pick up the overspill. Those opportunities will extend even to the more expensive clinics, predicts Schönherr, because they can provide treatment for the most complex illnesses.
Indeed, for the past five years, Clínica Las Condes has been doing transplants for the public sector under an agreement with the Health Ministry. Similarly, Kubik reports that 25% of Clínica Dávila’s sales are to the public sector, although this drops to 10% in the case of Clínica Santa María.
Tough treatment
In another expansion alternative, some clinics are looking to other South American markets as a source of new patients. Clínica Las Condes, where overseas patients account for 7% of sales, has a representative in Bolivia, while Santa María has an office there and is scouting the potential market in Ecuador.
However, investment in neighboring countries is not on the current agenda of Chile’s private clinics. Argentina and Brazil are not attractive, says Kubik, mainly because “they haven’t given much room to private medicine.” However, Banmédica is looking at the Dominican Republic and at the health insurance market in Florida.
But perhaps the main reason why the industry is not considering regional expansion is that it has its hands full at home. At Clínica Dávila, the occupancy rate averaged 80% in 2004, reports Cumplido. “At that level, a clinic is full; you have doctors asking for operating room time and not being able to get it,” he says.
And, with returns at private clinics running at around 10%, the domestic market is sufficiently attractive to focus the industry’s attention. “Returns have been relatively stable; the challenge now is to continue growing the business on which we can make that return,” says Juan Antonio Guzmán.
But, despite rising demand for private medicine, that may not be easy. The key question is what price clients will be prepared to pay.
Competition is fierce and the Isapres, which use their negotiating power to obtain discounts on list prices, are pressuring the clinics to trim costs. And the price that the public sector will be prepared to pay for its AUGE overspill has yet to be established.
That, and penetrating lower-income segments, means that private clinics will need to achieve efficiency gains, turning round patients as quickly as possible in order to get maximum mileage out of costly infrastructure and to spread high fixed costs as thinly as possible. And that, in turn, will mean tapping into scale economies - another reason why most of the main clinics are adding new beds. “The optimum size for a clinic in the 1960s was around 100 beds; today, it’s 200-250 beds,” says Guzmán.
As a result, industry consolidation is likely, with smaller players gradually being bought out by larger clinics, or disappearing. “If you want to be small, you have to find a niche and be boutique; in the mass market, the big operators have advantages that are difficult to match,” says Integramédica’s Oyarzo.
But will all the big players survive? Probably, say industry sources, partly because the entry of new players, at least in Santiago, is thought unlikely. “The need to establish a reputation is the main entry barrier,” observes Kubik.
Mergers, however, cannot be ruled out. Nor, despite the present scarcity of foreign investment in the sector, can an acquisition by a major international player be ruled out. Indeed, industry players cite the implementation of the Chile-U.S. Free Trade Agreement as making just such a move all the more likely.
Just Small? Or Boutique?
Small clinics, which have traditionally served middle-low income segments, are looking for new niches as the larger clinics increasingly seek to penetrate this sector. One small clinic believes it has found such a niche.Clínica Los Coihues, a small private clinic that claims to be the first in Chile dedicated exclusively to physical rehabilitation, started with technical assistance from Beverly Enterprises, a U.S.-based nursing home chain. An initiative led by the Asociación Chilena de Seguridad and the Mutual de Seguridad, Chile’s leading workplace health and safety organizations, the clinic treats people with physical disabilities caused by an accident or illness.“We operate in a very specific area of healthcare that, in developed countries, is not usually covered by high-resolution clinics,” says assistant manager Cristián Bunster. “And our specialization gives us a clear edge,” he adds. |
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Clinics need to turn round patients quickly in order to get maximum mileage out of costly infrastructure.
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For the past five years, Clínica Las Condes has been doing transplants for the public sector, says Alfredo Schönherr.
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“The optimum size for a clinic in the 1960s was around 100 beds; today, it’s 200-250 beds,” says Juan Antonio Guzmán.
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Healthcare Expenditure, 2001
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“The need to establish a reputation is the main entry barrier to the private clinic sector,” observes Banmédica’s Carlos Kubik.
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Integramédica is planning to build three medium-sized clinics in Santiago, says general manager César Oyarzo.
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Selected Private Clinics in Santiago
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Founded by a group of doctors in the early 1980s, the clinic’s comfort and smart décor set new standards for Chile’s private clinics.
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Special Report 
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