Overseas Markets Beckon U.S. Hospitals

ProMedica, a nonprofit operating more than a dozen hospitals across Rust Belt communities in Ohio and Michigan, is looking to a new market to bolster its anemic growth: China.
 Executives and staff from the Toledo-based nonprofit have been touring hospitals in Shanghai, Shenzhen and Chengdu, exploring possible deals in the world's second largest economy that they hope will help offset weak revenue growth at home.
 “We have to look outside our traditional world if we're going to survive,” said Randy Oostra, president and chief executive of the hospital group. “The economic model is tough” in Pro-Medica's domestic markets, where populations are stagnant or declining and where cost pressures and competition are shifting medical care outside of hospitals, he said.
 The hospital industry has been slower to globalize than many other U.S. sectors, daunted by the investment required and content with what was for many years a robust domestic market. Some prestigious U.S. medical centers and HCA Healthcare Corp. entered overseas markets years ago, but most American hospital systems have stayed home.
 Now, more are seeking cross border deals for the first time, while others are expanding their overseas reach. Deals range from consulting and management contracts to acquisitions. Markets attracting U.S. interest are diverse: from posh London neighborhoods to booming Chinese cities and other investments scattered across Europe and Latin America.
 The push is an effort to diversify revenue as pressure intensifies from U.S. consumers and policy makers to cut medical spending, some executives said. Others said new markets abroad offer more attractive margins or more favorable payment models. A more global reach can also help in the development of ties with international researchers, a potential benefit to U.S. academic medical centers, officials said.
 Boston-based Steward Health Care System reached a deal in February to run Malta's two public hospitals and open a third. UPMC, which is affiliated with the University of Pittsburgh, has long provided consulting and management services in several countries and is now looking to buy hospitals, cancer centers and primary care networks in Italy, Ireland, Kazakhstan and China, a company executive said. Other U.S. hospital corporations have struck deals in the U.K., Colombia and France in recent years.
 The efforts have gained momentum with a health-care overhaul in China, where rising rates of chronic disease and an aging population have increased health spending. China in recent years has said it would allow foreign ownership of some hospitals as part of the overhaul.
 “The sheer demand is just massive” in China, attracting investment from insurance companies, entrepreneurs and public and private infrastructure developers, said Axel Baur, a senior partner for McKinsey & Co. who is based in Hong Kong. Developers in China are looking to U.S. hospitals for brand recognition and expertise training staff and setting medical protocols, Dr. Baur said.
 Boston-based Brigham Health and Massachusetts General Hospital are helping Chinese partners open new hospitals, while Ohio's Cleveland Clinic disclosed to investors last year that it would consult for a Chinese developer. “The project is in the very early stages,” said Cleveland Clinic spokeswoman Angela Kiska.
 Dealogic data show overseas acquisitions by U.S. hospital and health-service corporations are on the rise, though the numbers remain small compared with the consumer-product, tech and pharmaceutical sectors.


Buying Abroad

U.S. health-services corporations snapped up international assets in more than 100 deals since 1995. Owners of hospitals and clinics were the biggest acquirers.

*Includes health-services subsectors
Source: Dealogic




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