The Pulse of Healthcare
Rushika Bhatia
Business Banking

The Pulse of Healthcare

Healthcare consists of broad services offered by thousands of hospitals, clinics, physicians, nursing homes, diagnostic laboratories, pharmacies and supported by drugs, pharmaceuticals, chemicals, medical equipment, manufacturers and suppliers. The total healthcare expenditures across the world was valued at $4.5 trillion, of which medical equipment industry was valued at US$ 290 billion in 2009 and the global prescription drug market was $550 billion in the year 2006. For the United States, the healthcare share of gross domestic product (GDP) is expected to hold steady in 2011 before resuming its upward trend, reaching 19.6% of GDP by 2016. In 2009, for the Organisation for Economic Co-operation and Development (OECD) countries, the average was 8.4%, with the United States (11.9%), Switzerland (9.9%), and Germany (8.7%) being among the top three. In the UAE, as a percentage of GDP healthcare expenditure per capita terms is among the top 20 in the world. Overall health expenditure was estimated at US$5.4 billion in 2009, equal to 2.6% of GDP. Approximately US$14 billion is being spent in the Gulf countries alone on new hospitals and healthcare facilities and infrastructure. In the last few years there has been a steady annual growth of more than 10% in the healthcare industry and the momentum is expected to prevail due to the high rate of population growth. The recent landmark of Dubai Government has been the introduction of Dubai Healthcare City, a $1.8 billion project which will work closely with the government of Dubai’s Department of Health & Medical Services and the UAE’s Ministry of Health to improve the overall healthcare system and facilitate delivery of healthcare. The UAE is committed to improving its health sector and, as such, is investing a significant amount in the construction and renovation of health facilities. In 1971 the UAE had only seven hospitals and 12 health centres. By 2007, however, there were more than 1,000 hospitals (public and private, including primary health centres and dental clinics, maternal and child health centres, and school health care centres), 1,193 pharmacies and 432 medical stores. With over 50 private hospitals, 2,461 beds and 2,281 private clinics, the government of the UAE has initiated plans to boost the market share of the private sector and as a result, many new hospitals have entered the market, with a steady increase in the number of hospitals expected in the years to come.

The Medical Equipment Industry
For purposes of finance and management, the healthcare industry is typically divided into several groups and sectors. The Global Industry Classification Standard divides the industry into two main groups:

• Healthcare equipment and services; and
• Pharmaceuticals, biotechnology and related life sciences.

Healthcare equipment and services comprise companies and entities that provide medical equipment, medical supplies, and health care, such as hospitals, home health care providers and nursing homes. The second industry group comprises sectors and companies that produce biotechnology, pharmaceuticals, and miscellaneous scientific services. The dynamic medical equipment market is intricately interwoven into the healthcare landscape. Valued at $290 billion globally, various facets of the industry are increasingly becoming interdependent whereby various products and services are being integrated to provide patients with better treatments and high quality care. As the cause for providing quality and widespread healthcare increases and continues to escalate, demand for equipments for a variety of conditions will continue to rise. While the cardiovascular equipments market remains the largest medical device sector, orthopaedic devices are a close second. Driven by the baby boomer population and the demand for reconstructive surgery, growth rates in the orthopaedic spinal and biologics segments will be significant. As reduction in healthcare costs and faster recovery times become a high priority, devices that enable minimally invasive procedures in all areas of medicine will witness strong growth, with the goal of becoming the standard of care for many treatments. The medical equipment industry consists of various establishments or units engaged in designing, manufacturing selling and distributing surgical and medical instruments, ophthalmic, lab apparatus, electro medical, dental, irradiation, surgical appliances and supplies. In the UAE the import of equipment accounts for an estimated 96.6% of the market in value terms and growth is expected to remain strong over the forecast period, taking into account the country’s limited domestic production capability. The UAE market, estimated at $US 1.25 billion in 2009, is projected to grow an average minimum of 10%.

Facts about financing
The medical equipment section is one of the most capital intensive parts of the healthcare industry and the availability of the latest equipment is important from the points of view of new technology, quality of treatment, and medical services to the end customers. Also, for new hospitals and clinics this is a major stumbling block when it comes to budgeting and finance, and in terms of expansion this is one of the major costs that needs to be budgeted for. While most banks and financial companies look at financial needs on a broader level for this industry to be fulfilled from within the working capital finance offered, there are very few financial institutions offering any sort of specialised financial products to cater to the needs of funding requirements for the purchase of medical equipments. Conventionally, manufacturers driven with no alternatives have begun offering credit for this capital investment to the healthcare industry in the form of a credit period to customers, typically 6-12 months with the costs towards this inbuilt within the price of the equipment. Of late, non-banking financial institutions have been active in terms of medical equipment finance but only in limited spurts. Recently there has been the entry of Abu Dhabi Commercial Bank (ADCB) in the medical equipment funding space, with a customised financial package specially aimed at hospitals, clinics, pathology labs and medical centres. ADCB will now fund up to 80% of the cost of the equipment of most major brands with tenures of up to five years, with the evaluation criteria and product structure specifically designed. The key benefits, from the point of view of the healthcare industry, of such financial product loans are:

• Conserve cash flow and improve liquidity as such loans do not tie up other sources of funding and credit lines
• Flexible terms and fixed monthly payments to suit various budgets
• Initial investment of only 20% of the cost of the equipment
• Upgrade of outdated equipment to avoid technology becoming obsolete
• Customers can acquire more for their money as they can afford more or better equipment

The future perspective of the medical equipment industry seems to be immensely bright and encouraging for the healthcare industry in terms of the expected surge in global demand and upsurge in investments. Several trends such as globalisation, continuous investments in research and development, newer techniques of drug development and discovery, product proliferation, mergers and acquisitions, all are the key drivers of this industry. Such financial packages of funding medical equipments purchases will go a long way in bridging the gap for financial assistance in terms of medical institutions being able to make available the latest technology equipments. All over the world, the spending on medical equipment has increased considerably. In Eastern Europe, public hospitals are increasingly approaching financial institutions to gain financial independence. This financial autonomy will allow the healthcare industry to invest in newer and more expensive medical imaging modalities, resulting in enhanced quality and services in the industry.

Nilanjan Ray currently heads the SME business at Abu Dhabi Commercial Bank (ADCB). ADCB is the second largest bank in Abu Dhabi promoted by government owned entities. Prior to joining ADCB in October 2007, Nilanjan had worked in ICICI Bank, Bahrain, as Vice President – Corporate & Commercial Banking. Prior to his assignments in GCC, Nilanjan was heading Asset Products & Credit for ICICI bank, Business Banking (SME) in India. He has also worked in HDFC Bank & IDBI Bank in India in various senior roles in SME Banking, Cash Management & Fixed Income Sales. He was part of the start-up teams in SME Banking in ICICI Bank & HDFC Bank. He started his career with Agriculture Finance Corporation, Mumbai, in project evaluation and monitoring. Nilanjan holds a post graduate business degree and a graduate degree in economics.