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

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. 

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.

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.