The Healthcare System and Delivery Network in Emerging Economies (China, India and Brazil) - Growth Opportunities Driven by Awareness, Affordability and Access

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The Healthcare System and Delivery Network in Emerging Economies (China, India and Brazil) - Growth Opportunities Driven by Awareness, Affordability and Access

China, India and Brazil are the fastest growing emerging markets in the world. The unprecedented growth seen in these emerging economies despite the world economic slowdown consolidates their role as the key players to influence the world economy in the future. India, China and Brazil together account for about one-third of the total world population. However, the huge population base in these countries continues to face serious healthcare issues, such as the rise in diseases and inadequate infrastructure facilities, in spite of the economic development. This presents enormous growth potential for healthcare delivery in these countries.

High Economic and Population Growth Driving the Healthcare Delivery Market

Demographics and GDP, Opportunities and Trends, by Country, 2009

Source: GBI Research

According to the 2010 world development indicators by the World Bank, China, India and Brazil are respectively ranked the 2nd, 4th and 9th largest economies in the world in terms of GDP based on Purchasing Power Parity (PPP). Each of the three countries spends 4.7% (China), 5% (India) and 8% (Brazil) of its GDP on healthcare. Although healthcare expenditure as a percentage of GDP has been increasing consistently, there has not been a significant rise in the per capita health expenditure because of the high population growth in these countries. The population of China is 1.3 billion while that of India is 1.1 billion. China implemented the ‘one child policy’ in 1979 which reduced the birth rate in the country while the Indian population continues to grow. In fact, India is poised to become the most populous country in the world, surpassing China by 2030. In respect to Brazil, this continues to be the largest and the most populous country in South America with a population base of 190 million.

The healthcare services and infrastructure facilities in these countries are inadequate to take care of the growing needs of this huge population. This makes the healthcare delivery market in these emerging economies an attractive opportunity for investors.

Socio-Demographic Trends Conducive to Growth in Healthcare Delivery Market in Emerging Economies

Emergence of the Huge Middle Class Population

The demographics of China, India and Brazil have undergone some fundamental changes such as the emergence of the ’middle class’. This middle class population has a high personal disposable income presenting it with greater purchasing power. For example, India’s middle class population was estimated at 300 million in 2009, representing 30% of the population and spreading across 5,000 towns and cities. Further, India has 10 of the 30 fastest-growing urban areas in the world and, based on current trends, a massive 700 million people will move to the cities by 2050. This will create significant demands for healthcare infrastructure and quality health services in India. In China, with the increase in disposable income, an increasing proportion of the middle class population is opting for private healthcare services offering better quality services. With about 190 million people, Brazil too has a fast emerging middle class population with over 30 million Brazilians joining the country’s middle class population between 2003 and 2009. The emergence of this new middle class population with greater income and access to credit offers abundant potential for the healthcare system and delivery network in the country.

Rise in Lifestyle Related Diseases

In the emerging economies, with the availability of greater disposable income, more and more people are enjoying a high standard of living, are more stressed out and are also leading a sedentary lifestyle. These factors have given rise to lifestyle related diseases such as hypertension, cardiovascular diseases and diabetes. In fact, cardiovascular disease is one of the leading causes of death in both urban and rural areas of China. It is estimated that there will be 21.3 million more cardiovascular events leading to 7.7 million more deaths between 2010 and 2030 alone.

Chronic diseases such as diabetes, cardiovascular diseases and cancer account for about 50% of all deaths in India. It is already the diabetic capital of the world and will have nearly 30 million diabetics by 2020. In Brazil, the situation is very similar with an increasing prevalence of lifestyle related diseases. Circulatory diseases happen to be of the top three causes of death in Brazil and these diseases account for nearly 50% of the deaths in the population age group of above 60 years.

This disease burden demands the expansion of the healthcare delivery system in these economies. The governments` in these economies are already taking steps in that direction and are also encouraging the private sector to invest.

China’s Plan to Invest $124 billion in Healthcare by 2011 to Drive Growth in the Hospital Construction and Medical Equipment Market

China plans to invest $124 billion in the healthcare sector by 2011 according to the healthcare reform plan passed in 2009. The money will be spent on building hospitals, improving rural infrastructure facilities and providing basic medical insurance to all the people. This has given rise to a thriving hospital construction market within China. The fact that 80% of the hospitals in China need to be rebuilt also strengthens the potential of this market. The government is also encouraging Sino (China) - foreign joint ventures, privatization of public hospitals and the outsourcing of hospital management and logistic services to encourage growth in the hospital sector. Although the investment of foreign companies in Chinese hospitals is limited to 70%, there have been an increasing number of foreign investments seen in the hospital sector. For example, the United Family Hospitals group, a division of Chindex International Inc, has set up world class hospitals in the country. Shanghai’s Tongji University, a national key university directly under the State Education Ministry, Siemens, and Germany-based hospital operator Asklepios Kliniken; have established a joint-venture Sino-German Friendship Hospital which will be launched in 2010 World Exposition. The hospital has a bed capacity of 500 with the overall investment for the hospital at more than $120m. An emerging trend seen in China is the investment in hospitals by Taiwanese entrepreneurs and corporations.

Medical Equipment Market Size ($bn), China (2009 - 2016)

Source: GBI Research

With the construction of new hospitals and the upgrading of the existing hospitals, there will be a huge demand for medical equipment. China’s already growing medical equipment market will receive a further boost growing from $11.8 billion in 2009 to reach $19.1 billion by 2016. Currently, China’s medical equipment market is the third largest in the world, only behind the US & Japan. GE is the largest foreign owned manufacturer of medical equipment in China while Mindray is the largest domestic manufacturer.

Hospital Sector Experiencing Exponential Growth in India

A striking feature of India’s healthcare system is the significant and growing role of the private sector in healthcare delivery. The hospital sector is growing exponentially with India allowing 100% foreign ownership of hospitals under the Special Economic Zones Act (SEZ). About 60% of all the hospitals in India are private with some of the most developed world-class hospital chains such as Apollo, Fortis, Max and Columbia Asia having a presence.

Corporate groups in India such as Reliance and the Aditya Birla Group are increasingly investing in the hospital sector. These hospitals provide general and specialized services at competitive prices enabling domestic as well as foreign patients to receive treatment. This has also led to the growth of medical tourism in India. The hospital sector is also attracting private equity and major venture capital funding. For example, ICICI, the largest equity firm in India has created a $225m equity fund to invest in the development of hospitals chains whilst a company called Global Healthcare investments and solutions has planned to invest part of its $500m equity fund in Indian tertiary care hospitals.

Evolution of Private Healthcare Sector, India

Source: GBI Research

With the high economic growth and emergence of the famed Indian middle class, the hospital sector in India is continuously evolving to meet the growing need for quality care and services. This has given rise to the concept of ‘Hospotels’ and ‘Medicities’ which are also known as ‘Health cities’ to provide quality healthcare to a large group of people while offering other facilities such as hotels, residential facilities, spas, gyms and sometimes even a golf course. With people being able to afford better quality healthcare, the concept of a health city seems to have moved up in the patient value proposition chain. This concept seems to be gaining strength in the country with prominent health cities being established including the Dr. Naresh Trehan’s medicity at Gurgoan and the Fortis medicity at Lucknow. This growth in the hospital sector has given a boost to the Indian medical equipment industry as well.

Home Healthcare Delivery and Private Hospitals Represent Key Opportunities in Brazil

As Brazil prepares to host soccer’s 2014 World Cup and the 2016 Olympic Games, its economy is experiencing a new surge. The events have driven new deals and contracts to attain international standards even in the healthcare sector. Although Brazil has a Unified Health System (UHS) which is supposed to provide healthcare to all its citizens, the private sector still accounts for about 58% of the overall health expenditure in the country. Also, about 75-80% of the hospitals providing services in Brazil are private. Rede O D’Or and Sao Luiz are two of the most prominent hospital chains in Brazil, while Sociedade Beneficente Israelita Brasileira Albert Einstein (SBIBAE) and Samaritan are other important hospitals.

With the rise in the aging population in Brazil, people are looking for alternative healthcare services and this has given rise to a thriving home healthcare delivery market. Brazil is a fast growing home healthcare delivery market which is focused on serving about 30% of the entire population that primarily suffers from chronic illnesses such as diabetes, hypertension, rheumatism and respiratory diseases. The homecare segment in Brazil currently accounts for an estimated 250 companies and the programs treat about 30,000 patients per month. Brazil is also the largest medical equipment market in Latin America with the majority of imports coming from the US (20%), Germany and Switzerland (13% each). Overall, the Brazilian healthcare delivery market looks positive with greater opportunities in the hospital, home healthcare delivery, medical equipment and hospital information systems sector.

Medical Tourism - An Emerging Trend in India and Brazil

Due to the high cost of treatment and surgeries in the developed countries such as the US and the UK, patients are looking for cost effective alternatives for their treatment. With surgeries performed in India, patients are expected to save 60 to 90% of the total treatment cost. Medical tourism is expected to represent 3 to 5% of the total healthcare delivery market in India. To promote medical tourism, the Indian government has started issuing medical visas (M visas) to patients. The government also announced in 2008 that an investment of $6.5 billion was in the pipeline to set up affordable budget hospitals and treatment care for medical tourists. In India, some of the leading players in the medical tourism sector are Narayana Hrudalaya, Apollo Hospitals and Fortis Healthcare.

The US has the highest number of cosmetic surgeries in the world. Being geographically close to the US, cosmetic travel i.e. plastic surgery medical tourism is popular in Brazil. In fact, Brazil is considered a haven for cosmetic surgery travel with surgeries being performed at 40 to 60% of the costs incurred in developed countries such as the US. Some of the leading players in cosmetic travel in Brazil are the Albert Einstein Jewish Hospital - Sao Paolo, Sociedade Hospital Samaritano - Sao Paolo and Hospital do Coracao - Sao Paolo.