Profiting from Health Care Tourism

In most countries of the world, health care costs have been rising rapidly and are no longer just the developed world’s problem. According to the Organization for Economic Cooperation and Development (OECD), while health care spending as a percentage of gross domestic product (GDP) will rise from about 7.1 percent to 13.2 percent over the next few decades, spending will rise even faster in developing countries.

For instance, in China health care spending is forecast to rise from only 1.9 percent of GDP currently to more than 8 percent by 2060, while in Brazil it is forecast to shoot up from just over 3 percent to nearly 11 percent over the same period.

Health care costs are skyrocketing not only because growing incomes are increasing access, but aging populations and rapid technological advances are also helping to drive health care cost inflation.

Rapidly increasing costs are driving many patients to seek medical care outside of their home countries, creating a global medical tourism business valued somewhere between $24 billion and $40 billion, as patients from affluent countries travel to less developed ones in search of lower cost health care.

Patients Beyond Borders, an organization that provides information about medical tourism, estimates that patients from most developed countries can save between 25 percent and 40 percent by seeking care in Brazil, 40 percent and 65 percent in Mexico and as much as 70 percent by traveling to Thailand.

Government and private sector investment have created robust health care infrastructures in those countries, nearly indistinguishable from what most patients would find at home. But thanks to higher incomes and stronger currencies, patients can receive a number of procedures, most commonly cosmetic and dental surgeries but also cardiovascular, reproductive and ontological services, for just a fraction of what they would pay at home.

Thailand-based Bumrungrad International Hospital (OTC: BUGDF) operates a private hospital in Bangkok with 538 beds that caters primarily to medical tourists travelling to the country. Capable of treating about 4,500 outpatients per day, the hospital provides treatment for digestive diseases and cancers, in-vitro fertilization services and a host of other services.

Over the past three years the hospital’s revenue has grown by an average 11.3 percent while earnings per share (EPS) have averaged 28.7 percent growth over the same period.

The hospital has been investing heavily in expanding its facilities, adding 5 floors to its outpatient clinic building this past May and adding 18 intensive care beds and 58 ward beds to its inpatient hospital facility. It also acquired a new building in Bangkok to house its back office activities and provide employee housing as it aggressively recruits doctors in new subspecialties. In all, the company made capital investments of about THB2.1 billion last year and plans to spend an average THB1.5 billion over the next five years.

On an average day Bumrungrad logs about 3,000 patient visits and admits about 90 patients with an average daily census of about 375 patients.

Over the past two years, the company’s revenue per visit has grown by an average 10.2 percent and, in its fiscal third quarter of 2013 it was up by 14.1 percent year-over-year. Revenue per admission has been posting growth in the mid-single digits over the past two years and shot up by 10.6 percent in the third quarter, largely thanks to price increases and improved operational efficiency.

In the third quarter, revenue from Thai patients was up by 12.6 percent while international revenue grew by 11.2 percent year-over-year. Thai patients contributed about 60 percent of revenue and international patients accounted for 40 percent. Patients from the United Arab Emirates accounted for 8 percent of international patients, followed by those from Myanmar (7 percent), Oman and the US at 5 percent each.

While insurance payments accounted for 12 percent of revenue, nearly three-quarters of patients are self-payers, so the hospital faces limited reimbursement pressure. The remainder of revenues were generated through corporate contracts with inpatients and outpatients each accounting for about half of revenues.

On an adjusted basis, net profit was up from THB515 million in the third quarter of last year to THB703 million in the most recent quarter. EPS was up from THB0.59 to THB0.81 year-over-year in the third quarter and up from THB1.85 to THB2.18 on a year-to-date basis, with net profit margin up from 16.2 percent to 17.3 percent over the same period.

As the global population continues to age rapidly and becomes more affluent even as out-of-pocket health care costs are rising, the worldwide medical tourism market is forecast to grow by an average 20 percent per year over at least the next decade, with the highest growth rates in Southeast and South Asia largely due to growing Asian incomes.

Geographically, Bumrungrad International Hospital is well positioned to capture much of that growth. With strong growth prospects ahead, Bumrungrad International Hospital rates a buy up to USD4.50.