Trend 1. The demographic squeeze drives increasing needs and cost of healthcare
Capio can identify three main drivers of the growing demand for healthcare and associated costs. Firstly, the share of the population in the 60+ age bracket is increasing disproportionately, as the post-war baby-boomer generation ages. The proportion of the EU population over 60 years of age is expected to increase to 29% in 2050 from 15% in 1960. Secondly, overall medical progress and the ability to manage illness have resulted in an overall increased life expectancy. Thirdly, the spectrum of illness has shifted towards managing chronic conditions (such as diabetes, obesity or cardiovascular disease) over longer periods of time.
While the population structure develops towards a larger share being elderly and while healthcare expenditure is increasing, the share of working people financing healthcare is expected to decrease, resulting in constrained public healthcare budgets. The share of the working population is expected to decrease at a CAGR (Compound Annual Growth Rate) of approximately 0.4 percentage points from 2010 to 20501, which, in turn, can be expected to reduce the funding available for healthcare and increase the need for healthcare providers to offer more efficient services at lower costs. Within the OECD, the average healthcare expenditure as a percentage of GDP increased from 7.7% in 2000 to 9.2% in 2012.2
The Western European healthcare system has begun to respond to this challenge, with different starting points and initiatives in the various countries, but with each system striving in the same direction. The Nordic countries were among the first countries to promote the adoption of Modern Medicine; evidence-based methods that allow certain conditions, which only a few years ago would have required major operations, to be treated today by a simple procedure or by medication alone. For example, Sweden introduced the DRG (Diagnosis Related Groups) remuneration system in 1995, but it was only introduced in France in 2005. All of Capio’s markets are now focused on consolidation, performance-based remuneration models and the capturing of scale synergies, for example from vertical integration of the healthcare system or collaboration across care units. In the Nordic region, Capio has successfully reduced the length of stay of patients in hospitals (AVLOS) before they can return to daily life, transferred large numbers of inpatients to outpatient care, and increased volumes via the system’s continued adoption of LEON (lowest efficient care level) to provide healthcare at the right level of care delivery and specialization. Capio can see that France and Germany present significant opportunities for similar improvement, and Capio believes that it is well positioned to benefit from these opportunities.
1 World Bank.
2 OECD Health Data 2014.