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Yield at the expense of the patients – German clinics in the focus of investors

Klaus Emmerich has a long list of problems ahead of him: emergency care could close in the clinic in Berchtesgaden, emergency care is also available in Wegscheid, and the district clinic in Freilassing threatens to be closed completely.

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Yield at the expense of the patients – German clinics in the focus of investors

Klaus Emmerich has a long list of problems ahead of him: emergency care could close in the clinic in Berchtesgaden, emergency care is also available in Wegscheid, and the district clinic in Freilassing threatens to be closed completely.

Another problem for the business economist Emmerich, who used to be a hospital manager himself and has been fighting against clinic closures since his retirement in Bavaria: the Franz von Prümmer Clinic in Bad Brückenau. "We wanted to prevent the closure of the emergency room by collecting signatures," says Emmerich. But the rescue operation was unsuccessful. The emergency room is now closed.

Emmerich's fight in the "Bündnis Klinikrettung" is exacerbated by the fact that he often leads him against unknown opponents. “Often, it is often only possible to find out who owns the hospitals within the framework of extended capital ties through time-consuming research in company registers. Not infrequently, the clinics have been sold to foreign financial investors,” says Emmerich.

It's similar in Bad Brückenau. The clinic, once run by the county, was sold years ago to a Scandinavian operator held by a private equity firm. The clinic was later passed on to a French hospital group. Now the clinic is run by a private consortium from Germany.

Almost unnoticed by the public, a monopoly game involving hospitals, worth millions, has broken out in the German healthcare system. In addition to private clinic chains, the moves are mainly made by private equity financial investors, also disparagingly called locusts.

What unites this industry: It likes to go unnoticed in its healthcare business. Quite a few of the investors are based in offshore centers such as the Cayman Islands.

The shopping spree of big business has not been interrupted by the pandemic and the strain on hospitals.

According to a study by the management consultancy PwC, “financial investors or strategists from abroad were also the driving market participants in 2021 and continued to acquire planned hospitals or hospitals with a supply contract”.

The Sankt Elisabeth Clinic in Heidelberg was bought by Patient 21, the Elbe-Jeetzel Clinic in Dannenberg in Lower Saxony went to Capiton AG, and the Sana Clinic in Nuremberg to Ergon Capital. "In addition, there were probably other hospital takeovers by financial investors that were not made public," says PwC.

It is not uncommon for the patient to lose in the million-dollar game. Politicians, associations and citizens' initiatives are warning of a thinning out of medical care and investors' savings plans.

Because the clinics themselves are mostly just a means to an end for the financial acrobats. "For regulatory reasons, the hospital is the sponsor for financial investors in order to be able to invest in the healthcare market and operate medical care centers," says PwC.

The problem arrived in the traffic light coalition with a slight delay. "Hedge funds" in the health system are a "thorn in the side of the Federal Ministry of Health," it said last week when Federal Health Minister Karl Lauterbach (SPD) presented his hospital reform plans.

Lauterbach did not reveal how the sale of hospitals, medical care centers (MVZ) and medical practices to international financial players should be stopped. "Corresponding legal regulations are to be introduced next year," the ministry said.

The pressure on Lauterbach is increasing. Janosch Dahmen, health policy spokesman for the Greens, is "extremely alarmed" about the activities of the financial investors. Criticism and calls for stricter regulation are also growing from other parties.

At the center of the demands are private equity investors. Although private clinic chains such as Helios or Asklepios also work for profit, these operators are usually interested in the long-term preservation of the clinics.

The funds, on the other hand, see themselves as temporary owners who want to resell their investments as profitably as possible. The industry is silent about exactly how this happens in the health sector - with good reason, as research by WELT AM SONNTAG shows.

The trail to the string pullers of the discreet hospital deals leads to a glass tower in an expensive area of ​​Berlin. The entrance hall is kept simple. On the board next to the reception desk, a sign advertises dozens of law firm locations: USA, Peru, Bermuda, Cayman Islands.

On one of the upper floors, a man with a three-day beard and a precisely cut two-piece suit welcomes you. He is a lawyer responsible for the health sector. The meeting with WELT AM SONNTAG takes place under the premise that neither his name nor the name of the law firm will be mentioned. The lawyer should therefore be called Simon Becker in this story. Reason for the secrecy are the practices of the industry. "There are two types of investments that private equity doesn't like to talk about: armaments and medicine," he says.

Becker arranges the purchase of hospitals for German and international investors. He is on the lookout for relevant clinics, combs through the hospitals' balance sheets and accompanies the entire transaction. "Medium-sized hospitals are particularly in demand," says the lawyer. Whether the clinics make a profit or a loss is often of secondary importance to customers. Because you can't make money with the facilities themselves. "The hospitals themselves are just a vehicle," says Becker.

In order to understand his explanations, one must know that certain prerequisites are required in order to become active in the German healthcare market. It is reserved for certain groups to operate medical care centers or medical practices. Only doctors or hospital operators are allowed to do this. In order to expand the group of those entitled, lawyers like Becker come into play.

“It is defined who may operate medical care centers or medical practices. But it is not regulated who may be the owner of a hospital," says Becker. He speaks of a "legal loophole" through which investors can get into the health system - which is not intended for them. According to Becker, if investors got into the healthcare market through the hospital purchase, they would usually pursue a “buy and build” strategy. They would buy up medical practices, for example, and achieve synergies through the merger.

The industry is proceeding in a similar way with the MVZs, where top returns await due to the concentration on high-margin special areas such as dentistry or radiology. On the other hand, “nobody” invests in poorly remunerated areas such as gynaecology.

Becker has no ethical concerns. "The investors make medicine more efficient and cheaper for the patient," he says.

But not everyone sees it that way. Citizens are increasingly joining forces to form initiatives and are fighting back. According to business economist and activist Emmerich, the activities of private equity had a fatal impact on hospitals. The investors tried "to run the clinics on a minimal budget in order to keep the deficit as low as possible or to generate profits."

Resistance to the shopping sprees of high finance also comes from the National Association of Statutory Health Insurance Dentists (KZBV). In particular, the investments made in the medical care centers after the purchase of the hospitals met with criticism from the KZBV.

The association warns of the dangers of the investor-supported MVZ for "quality, patient well-being and for ensuring comprehensive contract medical care".

The criticism has left its mark on financial investors. "The fear of regulation and the increasing lack of exit options are currently leading to reluctance among some investors," says lawyer Becker. But alternative growth areas have probably already been identified. The major Swiss bank UBS points out in an advertising brochure that “in the course of the pandemic, mental health has once again come into the limelight”. In addition to private equity investments, this investment area could also be suitable for "impact investing". When asked, UBS did not want to say what margins mental illnesses bring in for investors. The industry is secretive.

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