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Hospitals in developing versus developed economies and key operational differences

Hospitals form an integral part of the world economy, they help cure diseases, saves lives of seriously ailing patients and contribute to a healthy and productive economy.

The global hospital industry, which is $10.2 trillion in market capitalization (Source: Bloomberg) is highly concentrated in the United States and Australia and together contributes more than 43% of the market capitalization. The average government spending on the healthcare sector as a percentage of the GDP is around 10.1% for the developed economies. In contrast, only 6.2% is the spent by the authorities in the developing economies (OECD Health Statistics 2015).

Moreover, in developed economies, most of the healthcare related expenses are borne by the government agencies as part of the social security, while in developing economies, major healthcare expenses are borne by the individuals who are mostly uncovered. This has led to subtle differences in the operations of the hospitals in the developed and the developing economies. Televisory has analyzed few listed companies in the developed and developing economies, our analysis reveals the reasons for the above differences, which are listed below.

Firstly, the occupancy rate of the operational beds was higher in the developing economies vis-à-vis the developed economies as seen in the chart below. This is because of the lower number of hospital beds available per ’000 people in developing economies (2.4) compared with developed economies (5.4). This is largely due to lower health expenditure budget was undertaken by the governments in the developing world. On the other hand, in developed economies, the occupancy rate has remained constant over the last 5 years, while it has increased by 6% points for the developing economies. This is mainly because operational beds addition rate was lower than the in-patient growth over the past 5 years.


 

 

 

 

 

Source: Televisory Research

Source: Televisory Research

Secondly, skilled hospital workforce in developing economies is comparatively much lower than that in the developed economies. The physician density per ‘000 people was 1.9 in developing economies and was 3.4 in developed economies (2012). However, staff expenses for hospitals operating in developing economies remained significantly lower than in developed economies on account of the lower wage structure in such economies.

    

Source: Televisory Research

Developing Economy: Apollo Hospitals (India), Asiri Hospital (Sri Lanka), Bumrungrad Hospital (Thailand) Developed Economy: Ramsay HealthCare (Australia), Hospital Corporation of America (USA), Community Health Services (USA), Life Point Health (USA), Tenet HealthCare Corp (USA)

Thirdly, the number of in-patients (admissions) as a percentage of total patients has continued to be higher for developed economies as compared to the developing economies, as shown in the chart below. Further, a majority of the hospitals in developing economies are unequipped with the latest medical equipment and technologies. Furthermore, as of March 2014, in India only 17% people were covered under the health insurance, while in the USA, a staggering 87% people were covered. Therefore, in most cases in the developed economies, people prefer to stay and get treatment in a hospital even for minor ailments, as incremental cost is minimum for patients with insurance. On the contrary, in developing economies since a majority of healthcare expenditure is borne by the individuals, they avoid getting admission in a hospital unless urgently required.

  

Source: Televisory Research

Additionally, revenue and EBITDA per operational bed are much lower for hospitals in developing economies vis-à-vis the developed economies. This is due to low healthcare costs in developing economies owing to the low per capita income, while the healthcare expenditure is higher in developed economies because of easy availability of government and third-party health insurers. Moreover, the share of in-patients is higher in developed economies, leading to higher revenue per operational bed (typically per in-patient revenue is much higher than per out-patient revenue). However, on profitability front, hospitals in developing world fare better than their counterparts in the developed world (as indicated by superior EBITDA margins in developing economies) on account of significantly lower employee expenses.

  

Source: Televisory Research

Source: Televisory Research

Finally, the capital cost required for setting up a hospital facility in the developed economy is much higher than the developing world as shown in the chart below. This is due to the fact that most of the facilities in developed economies are equipped with the latest and the most advanced technology.

Source: Televisory Research

In conclusion, the hospitals operating in developed economies appears to fare better than their equivalents in developing economies on per bed efficiency metrics (better revenue per bed and EBITDA per bed), mainly on account of favorable public healthcare policies and high awareness about and availability of insurance products. The hospitals in developing economies enjoy superior profitability (EBITDA margin) on account of higher occupancy rates and lower manpower cost.

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