The interview partners
Prof. Dr. Patrick Da-Cruz is Professor of Business Administration and Healthcare Management at the Faculty of Healthcare Management at Neu-Ulm University of Applied Sciences (HNU) and Academic Director of the MBA program Leadership and Management in Healthcare.
Before joining the HNU, Mr. Da-Cruz worked for renowned strategy consultancies in the pharmaceutical/healthcare sector and in management positions in companies in the healthcare industry in Germany and abroad.
Prof. Dr. rer. pol. Wolfgang Merk first studied business administration with a focus on hospital management and then economics. The graduate economist then completed his doctorate with a dissertation on competition in the healthcare sector. He is head of the Business Administration-Healthcare Management course at the DHBW Stuttgart and is also a publicly appointed and sworn expert for the valuation of companies and practices in the healthcare sector.
What role do financial investors currently play in outpatient care and why is the outpatient market in Germany of particular interest to financial investors?
Prof. Dr. Wolfgang Merk: Although financial investors have invested heavily in the German healthcare sector in recent years, the overall private equity share of all medical and dental practices is probably only around 2%. In times of low interest rates, private equity companies saw the German healthcare sector as a de facto risk-free safe haven, where a pre-tax return on equity of 8 to 10% can be achieved by replacing a freelance doctor with an employed doctor. The PE companies also pursued a buy-and-build strategy. They hoped to achieve an increase in value by reselling the individual acquired practice at a significantly higher price as part of the sale of a practice chain.
The fact that financial investors are not able to transfer and operate practices into an MVZ GmbH directly, but indirectly via the acquisition of a planned hospital, means that the necessary legal framework for the creation of holding structures is also in place.
What opportunities and challenges do you see in connection with the involvement of investors in outpatient care?
Prof. Dr. Wolfgang Merk: In the past, the topic has been charged with health and professional politics by many players - unfortunately ideologically triggered and communicated counterfactually. In interviews and his infamous tweets, Prof. Lauterbach, the current Federal Minister of Health, has indiscriminately accused “investors” in the healthcare sector of “absolute greed for profit”. Practices would only be taken over in order to run them at “maximum profit”. The layman's choice of terms alone suggests that Prof. Lauterbach probably has considerable deficits in basic economic knowledge. However, I find it downright scandalous that in a social market economy based on private investment, politicians, without any factual basis, accuse companies that are willing to invest their money in healthcare of having unethical motives per se, thereby de facto criminalizing them.
The fact is that, according to my calculations, around 2,600 practices in the human medicine sector alone cannot be filled each year, partly because young doctors prefer to work as employees rather than freelancers. In the area of outpatient care, this corresponds to an investment gap of around €1.4 billion per year. Who should make these investments? The state with even more debt, which is camouflaged as special assets? SHI with even more deficit? We urgently need more private investors, not fewer.
How are politicians and health insurers (KV) assessing the issue?
Prof. Dr. Wolfgang Merk: The KV and the health insurance companies have joined in the investor bashing. From the KV's point of view, this is of course understandable, as they are de facto lobby organizations for doctors in private practice and also see themselves as the guardians of the freelance profession. In the external communication of the KV and the KBV, one can easily get the impression that the profit motive is completely alien to the physicians in private practice and that they actually operate at subsistence level without any monetary interest. The KV only demand “adequate fees”, whatever they want to understand by that. According to their narrative, the “bad” investors manage to achieve maximum returns in the same market, while the “good” doctors just about make ends meet. Not exactly credible. Incidentally, anyone who communicates like the KBV should not be surprised if they lose the next generation of doctors and no one dares to become a freelancer.
How will the topic develop in the future?
Prof. Dr. Wolfgang Merk: The topic is actually already over, because financial investors have been on the retreat again since the end of 2022. There are three main reasons for this:
1. uncertainty about the political framework conditions: Mr. Lauterbach has considerably unsettled the funds with his threat of an anti-investor law alone.
2. the rise in interest rates: from an investor's point of view, this has made alternative forms of investment much more attractive and also significantly reduced the potential to exploit the leverage effect, as PE also works with debt capital.
3. lack of sector knowledge and overestimated synergy effects: Most private equity managers have uncritically transferred their valuation models and experiential knowledge from other industries to the outpatient sector. They are now realizing that salaried doctors only generate around 70% of the turnover of the freelancers they are substituting, while salaries are rising disproportionately, staff shortages are a huge issue and private patients prefer to go to smaller practices. In addition, digitalization, for example, offers few synergies.
As a result, many financial investors are now sitting on practices they bought at too high a price and have to watch their EBIT head south a little more every day. A hoped-for sale as a chain to other PEs has thus also come to nothing. I assume that investors will come under increasing pressure to sell. They will therefore try hard to find strategic investors, but will have to restructure themselves first. However, this will be difficult for them to achieve. My forecast is that many investors will soon have to sell their MVZs and put them on the market individually due to a lack of alternatives. At some point, they will come to the realization that you shouldn't throw good money after bad.
Thank you very much for the interview!
The content and statements presented in the interviews reflect the perspective of the interviewees and do not necessarily reflect the position of the editorial team.
