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Germany focuses on outpatient care before inpatient care: medical care in transition

Verena Bauer • 30/08/2021
 Medical care Germany Medical care Germany

The German market for medical care services is undergoing profound structural change: regional overcapacities, loss-making hospitals, rising operating costs, a sometimes significant investment backlog in real estate and a shortage of staff, at least regionally, characterise the care landscape. At the same time, the federal, state and local governments are striving for a nationwide needs-based and efficient care structure. Public debates are becoming louder, not least fuelled by the COVID 19 pandemic, which exposed weaknesses in the health system. Is the German health system crisis-proof? Does it really make sense to reduce (excess) capacity? Or is it in society's and the national economy's interest to retain reserve capacity in case of a third wave or a new pandemic?

The federal government's hospital structure fund is intended to finance the reduction of overcapacities in inpatient care with up to two billion euros by the end of 2024. According to the guiding principle "outpatient before inpatient" from the Social Code, care is shifting towards medical care centres. These are to make the treatment of patients more efficient by combining specialisations and cooperating closely with rehabilitation facilities. Medical services in cities, and particularly in rural regions, should still remain available and accessible, but with optimised costs and higher quality.

What are the central trends and developments in the hospital market? And how is the change towards medical care centres shaping up?

In Germany there are currently just over 1,900 hospitals providing a total of about 494,000 beds. The total number of facilities has fallen by 150 since 2010 (-7.3%). There are strong regional differences here: While North Rhine-Westphalia and Lower Saxony together have over 80 fewer hospitals, the number of hospitals increased in the states of Hamburg (13), Berlin (8), Brandenburg (6), Schleswig-Holstein (14) and Thuringia (1). However, the number of total beds decreased by only 1.7 percent. Unprofitable hospitals were merged. This increased the average number of beds per hospital to 258 in 2019.

Medizinische Versorgung Verteilung nach Bundesland Medizinische Versorgung Verteilung nach Bundesland
Medizinische Versorgung Verteilung nach Trägerschaft Medizinische Versorgung Verteilung nach Trägerschaft

Consolidations and specialisations reinforce the privatisation trend

Private hospital operators accounted for largest single share, at 37.8 percent of general hospitals in 2019 - this corresponds to an increase of almost 5 percentage points since 2010 and is significantly higher than the proportions of non-profit or public operators. Measured in terms of the number of beds, however, the figure was lower at about 19.3 percent in 2019. The reason: private-sector hospitals focus on specialisation. However, the trend towards privatisation in the hospital landscape is also due to increasing consolidation and takeovers by large corporations. In addition, municipal hospitals in particular are now usually run in a private-legal form. Public bodies, such as university hospitals, provide the majority of plannable beds in general hospitals in Germany and thus also constitute an important component of hospital care.

Mental illnesses require different care to respiratory infections  

Patient record: With more than 19.4 million hospital patients in 2019, an all-time record was again set. Nevertheless, the occupancy rate of available beds remains at a historic low of 77.2 percent. The reason: At 7.2 days per patient, the length of stay in 2019 was lower than ever before. Shorter treatment times for cardiovascular diseases, targeted preventive measures and faster transfer to rehabilitation facilities contribute significantly to this. In addition, patients with mental disorders as their main diagnosis are becoming more frequent, and respiratory system diseases less frequent. Full inpatient care is therefore required less often and for a shorter period of time. Mental illnesses tend in contrast to require longer-term and targeted outpatient treatment by doctors and psychotherapists, which takes place outside hospitals.


Investment redirected into real estate instead of personnel

Rising operating costs are forcing facilities and operators to consolidate. The profitability of general hospitals, which has been declining for years, is a result of shorter hospital stays and the low occupancy rate, but also low investment rate by the federal states. The Lower Saxony Hospital Association (NKG) determined an investment ratio of 8 to 10 per cent that is necessary every year; in 2019, it averaged 3.2 per cent in Germany. The federal states are responsible for the investment planning of the facilities in their areas and have been providing ever fewer financial resources for hospitals over several decades. Accordingly, the rising operating costs are borne by the health insurance funds, so that operators are using an ever greater proportion of their operating funds for investment in real estate instead of in nursing staff, for example. 

Medizinische Versorgung Deutschland Medizinische Versorgung Deutschland

Support for change from the liquidity reserve of the health funds

In order to reduce the overcapacity of general hospitals in Germany, the Hospital Structure Fund was set up. It is intended to finance hospital closures, mergers and conversions in Germany. For this purpose, up to one billion euros will be made available annually from the liquidity reserve of the health funds. The federal stated can submit applications for disbursement from the structural fund until the end of 2022. The financial resources will be provided 75 percent by the federal government and 25 percent by the individual states. With the aim of supporting particularly loss-making hospitals in closing or converting.

Medizinische Versorgung Deutschland Medizinische Versorgung Deutschland

Medical care centres score via specialists and high efficiency

Rising health expenditure is accelerating the shift towards outpatient medical care. General hospitals sometimes operate more inefficiently than specialised facilities, and struggle with low occupancy rates and a lack of investment. The cost of inpatient treatment is almost ten times that of outpatient treatment. Medical care centres, on the other hand, offer high efficiency: specialised doctors from different fields work under one roof and can treat patients efficiently on an outpatient basis. Many disorders receive better treatment in specialised rehabilitation facilities. The cost structure in medical care centres makes it much easier for operators to operate profitably and ensure high-quality care.


Long-term leases and increasing professionalisation are strengthening the investment market for outpatient medical care centres

Medical centres and medical care centres are establishing themselves as a safe investment asset class are experiencing increasing interest from institutional (real estate) investors - those who are already established in the healthcare real estate market as well as those who are looking to enter it. The reasons for this include the politically-motivated “ambulantisation” of medical care and the increasing need for care due to demographic change. The progressive professionalisation in the operator market coupled with long-term lease agreements with the operators as general tenants or the individual practising physicians are contribution to the institutionalisation of the asset class. The relevance of medical centres and medical care centres for the German health care market became even more visible with the advent of the Corona pandemic. Last year, medical centres transaction volume exceeded 250 million euros; by mid-year 2021, transaction volume already exceeded 230 million euros. A further increase in transaction volume is expected in the second half of 2021. Prime yields are between three and four per cent, with location, property quality, accessibility, catchment area and socio-economic fundamentals and forecasts being decisive factors. The asset class will continue to gain in attractiveness for institutional investors.


Jan Bastian Knod
Jan-Bastian Knod

Head of Healthcare Advisory

Head of Residential Investment Germany

+49 69 50 60 73 261

Send me a message.

Simon Jeschioro Germany
Simon Jeschioro

Head of Investment Advisory

+49 69 50 60 73 260

Send me a message.

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