Emerging Market Hospitals a Fit Investment for Long-Term Investors? We Think So



With long-term demographics on their side, emerging market private hospitals can offer compelling investment opportunities, in our view.

As emerging market investors, we are often attracted to the demographic dividends that several of the countries in our asset class enjoy. India and Mexico, for example, have a median age of 27.1 This is a stark contrast to the median age in the United States (37), France (41) and Japan (46). Young and growing populations offer a unique set of opportunities and challenges for consumer-facing businesses that compete, in many cases aggressively, to capture a piece of this rapidly growing pie. It’s not widely appreciated that, despite the relatively low median age, many emerging markets have a rapidly growing elderly population. For example, the World Bank estimates that the percentage of Turkey’s population over age 65 has increased from 4.7% in 1980 to 7.4% in 2013. Similar demographic profiles are apparent in developing countries such as Malaysia, Singapore and even India. In the case of Thailand, the United Nations estimates that the number of people over age 70 will increase from around 11 million in 2017 to 20 million by 2037. Perhaps the most extreme case is China, due to its previous one-child policy. The Brookings Institution estimates about 120 million people in China are over age 65 and forecasts the number to grow to 200 million by 2028.

Growing middle classes in developing countries are demanding better healthcare. Many emerging markets suffer from overburdened, highly ineffective public sector hospitals, where standards of care are usually suboptimal and the medical procedures offered quite limited. The capacity of developing world public hospitals is also woefully limited. Hospital beds per thousand people, a widely cited metric to indicate levels of healthcare penetration, reveals a wide gap between developed countries and many emerging markets. Hospital beds per 1,000 approach 5.6 in Europe, several multiples higher than the 0.7 observed in India.2 (Figure 1)


Figure 1: Hospital Beds per 1,000 in Select Countries

Source: OECD Health Statistics 2013


We believe rapid growth in the elderly population and rising interest in higher-quality health care will provide a solid demand base for well-run private hospital operators in developing economies. Public and private sectors in many emerging markets are increasingly working together to improve standards of care. Policy makers in developing countries are pursuing initiatives to promote greater use of health insurance. At the same time, private insurance companies have increased the availability of protection-related policies, which cover critical illness situations. Private capital has started to flow into the segment, facilitating the privatization of inefficient public hospitals, the building of specialty clinics such as ophthalmology and dental treatment centers and the provision of more complex surgical procedures.

Private capital typically offers more competitive compensation to doctors and nurses, and allocates resources for state-of-the-art medical equipment and services more effectively. As a result, we have started to see an increase in brand equity for many of the best-in-class operators. Several are now establishing themselves as cross-border champions, with operations in several developing countries. Growth of Joint Commission International (JCI)-accredited hospitals in emerging markets is the manifestation of this phenomenon. In 2003, China had only one JCI-accredited hospital, but the number grew to 23 by the end of 2014. India had zero in 2003, but 19 by end-2014. United Arab Emirates had only one in 2003, but now it has 49. Malaysia’s went from zero in 2003 to nine in the same period.

“Medical tourism” demand is both regional and international. Members of the growing middle-to-upper classes from developing countries are traveling abroad in greater numbers in search of higher standards of care. Singapore, Malaysia, Thailand, Turkey, among others, have developed a growing reputation as centers of excellence in the medical tourism field. We believe cost arbitrage between developed and emerging markets could drive additional demand toward several of these centers. For example, the Turkish Ministry of Health estimates the cost of a hip replacement in the United States ranges from $24,000 to $43,000, while the cost is $12,000 to $16,000 in Singapore; $12,000 in Thailand; and roughly $11,000 in Turkey. Several private hospital operators are forging strategic alliances with highly regarded U.S. hospitals to share best practices.

Medical Tourism Prices

U.S. India Thailand Singapore Malaysia Mexico Poland
Heart Bypass $113,000 $10,000 $13,000 $20,000 $9,000 $3,250 $7,140
Heart Valve Replacement $150,000 $9,500 $11,000 $13,000 $9,000 $18,000 $9,520
Angioplasty $47,000 $11,000 $10,000 $13,000 $11,000 $15,000 $7,300
Hip Replacement $47,000 $9,000 $12,000 $11,000 $10,000 $17,300 $6,120
Knee Replacement $48,000 $8,500 $10,000 $13,000 $8,000 $14,650 $6,375
Gastric Bypass $35,000 $11,000 $15,000 $20,000 $13,000 $8,000 $11,069
Spinal Fusion $43,000 $5,500 $7,000 $9,000 — $15,000
Mastectomy $17,000 $7,500 $9,000 $12,400 $7,500
Tummy Tuck $6,400 $2,900 $3,500 $6,250 $3,903 $3,000 $3,500
Rhinoplasty $4,500 $2,000 $2,500 $4,375 $2,083 $3,200 $1,700
Costs in U.S. Dollars. The price comparisons for surgey take into account hospital and doctor charges, but do not include the costs of flights and hotel bills for the expected length of stay.

Source: Medical Tourism: Treatment, Markets and Health System Implication. OECD

As a growing opportunity, the private hospital sector is still in its nascent phase within emerging markets, representing only 1% of the MSCI Emerging Market Index. However, we believe this sector will grow and develop over the next couple of decades, with several operators emerging as cross-border champions. Identifying the right management team with the appropriate long-term vision for growth could provide an attractive long-term investment opportunity for investors focused on emerging markets. This is something we aim to accomplish through our active management framework. While there are merits to investing in hospitals across developed markets, we think the growth opportunity in developing markets is particularly robust, given the long-term demographic dynamics, growing middle class, high demand for greater and better health care access, and currently low penetration levels of private hospital operators.


1. CIA World Factbook
2. Health at a Glance 2013 - OECD

OECD is the Organization for Economic Cooperation and Development. www.oecd.org. The OECD is a mostly developed-country forum focused on economic data analysis and policy coordination to boost productivity and economic growth.

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