Health is the key

March 2018 – Irrespective of whether the focus is on a specialist practice, pharmacy or city clinic, a pharmaceutical giant or a biotech start-up: the health industry is one of the most important sectors in the German economy, which has been growing faster than GDP for years. Despite the momentum, the industry is also facing major challenges and change. In particular, the investment needs in terms of digitization are immense.

The extreme flu epidemic at the beginning of 2018 has confirmed it again: Without health life is not life. A Forsa survey conducted in May of last year has shown that in terms of values, Germans place "health" before "family" and "career". The Germans are increasingly prepared to spend money on health. In addition to contributions to the statutory health insurance or private insurance, they spend increasing amounts on additional medical treatment, over-the-counter medicines, back massages or health-related travel. In 2016, every fourth euro of total spending on the health industry, worth EUR 432 billion, was generated in the so-called secondary market - in contrast to the primary market of the health industry, which covers the goods and services funded by the health insurance companies. This was the result of the study "Health industry - Facts & Figures 2016" of the Federal Ministry for Economic Affairs and Energy.

With gross added value of close to EUR 340 billion, the industry is almost as big as the gross domestic product of Austria

Development of gross added value in the health industry and its share of GDP

With gross added value of close to EUR 340 billion, the industry is almost as big as the gross domestic product of Austria


Source: Federal Ministry for Economic Affairs and Energy, "Health industry. Facts & figures Edition 2016"

The mere fact that the Federal Ministry for Economic Affairs and Energy regularly undertakes costly studies on the healthcare industry shows the industry's paramount importance to the German economy. The gross added value generated by the healthcare industry in 2016 amounted to around twelve percent of the total gross domestic product - representing on average every eighth euro. With gross added value of close to EUR 340 billion in 2016, the industry is almost as big as the gross domestic product of neighboring Austria. The growth is impressive: Since 2005, the industry has grown in nominal terms every year - even during the financial crisis years of 2008/2009. Around 1,900 hospitals contribute to this success just as much as roughly 100,000 doctors' surgeries, 20,000 pharmacies, around 27,000 nursing care facilities and the numerous medium-sized companies and groups in the pharmaceutical, medical device and biotech sectors. According to the statistics provided by the Federal Ministry for Economic Affairs and Energy, in 2016, the German pharmaceutical industry generated sales of around EUR 48 billion, followed by medical device companies with more than EUR 28 billion and the growing biotechnology industry with well over EUR 3 billion.

Employer of seven million people

These numbers make one thing clear: While the healthcare industry is a significant cost factor, which has been the focus of public reporting in the face of rising social security contributions and skyrocketing medical costs, good healthcare also has great economic benefits. The health industry employs around seven million people in Germany - from researchers in the pharmaceutical laboratories to assistants in medical practices to physiotherapists in spa hotels. "A health system with good acute medical care and a well-developed rehabilitation system is of key importance for the economy as a whole. It makes a significant contribution to maintaining the earning capacity and productivity of the working population and allowing people to meet their own needs. Investing in people's health is, therefore, an important contribution to growth, employment and prosperity" states the latest sector report from the Federal Ministry for Economic Affairs and Energy.

“Digitalization speeds up the changes in the system. Technological progress leads to so far unknown methods of treatment and new economic opportunities.”

Sandro von Korff, Head of Health Care at HSH Nordbank

Radical change is coming

Radikale Umbrüche zu erwarten

The reasons for the sustained boom in the healthcare industry can be listed quickly enough: increased life expectancy, rising health awareness among Germans, new medical options and a good presence of German export companies in the international health care markets. "At the same time, however, the healthcare system is undergoing radical change, not least due to digitization and the subject of e-health," says Thomas Miller, Executive Director Research at HSH Nordbank, who is the author of the "Healthcare Industry Study" published in August 2017 by HSH Nordbank. The bank is one of the leading financiers of the health industry in Germany - with existing business worth EUR 1.2 billion and new business worth just over EUR 450 million last year alone.

"We continue to see the healthcare sector as a growth engine for the German economy," says Miller. In terms of figures, an above-average growth rate of between three and four percent is realistic. "Naturally, there are challenges in this industry as well. We need more innovation, as otherwise the German companies risk losing to competition, especially in the US. This requires investment. This is true for all sectors, but especially for hospitals," says Miller. Miller believes that from the middle of this year, there will be an infrastructure for secure digital data exchange between the sectors. "It is a major step forward, but to take part, service providers need to invest." And Sandro von Korff, Head of Health Care HSH Nordbank says: “Digitalization speeds up the changes in the system. Technological progress leads to so far unknown methods of treatment and new economic opportunities”, however, von Korff adds, caused by specialization and interconnectedness a range of roles and perspectives shifts in this growth market.

“Digitization in the healthcare industry offers enormous opportunities.”

Arthur Kaindl, General Manager Digital Health Services at Siemens Healthineers

Investments will thus become the central theme for the next few years in the industry - and will be the critical factor for future market success. Nevertheless, the sums involved are considerable. According to calculations of HSH Nordbank, an average hospital will need to budget nearly EUR 20 million for e-health investments. This is a lot of money for some clinics, which already have their backs to the wall. The average digital investment costs for medical and dental practices amount to around EUR 250,000.

"Some practices or hospitals will not be able to afford the necessary investments. For them, a vicious circle begins - less revenue due to falling market shares, dwindling margins and thus fewer chances for modernization. That is the dark side of the brave new world," warns Miller.

“The patient is driving digital progress in healthcare.”

Max Müller, Chief Strategy Officer at DocMorris

On the bright side, on the other hand, are the healthcare providers who have the power to invest, as well as the emerging new entrants, such as the e-pharmacy DocMorris. Its Managing Director and Chief Strategy Officer Max Müller firmly believes that "The patient is driving digital progress in healthcare." "Digitization in the healthcare industry offers enormous opportunities," stresses Arthur Kaindl, the General Manager of Digital Health Services at Siemens Healthineers.

The upcoming wave of investments in digitization in the healthcare industry is not only unstoppable, but will - however paradoxical this may sound at first - help to cut costs in the medium term. According to the estimates of the auditing and consulting firm PwC, the new digital infrastructure in Germany will account for twelve percent of healthcare costs annually. In 2016 alone this amounted to EUR 43 billion. In addition, the hospitals do not have to do everything on their own when it comes to digitization. "A broader strategy also includes the ability to initiate collaborations with start-ups in the digital health area to develop new solutions for better patient care. This is an opportunity that currently only a quarter of the clinics have seized" noted Oliver Rong, senior partner at Roland Berger and healthcare industry expert .

Germany has the fifth highest per capita health expenditure in the world

Per capita health expenditure in selected countries (in US dollars)

Germany has the fifth highest per capita health expenditure in the world


Source: Federal Ministry for Economic Affairs and Energy, "Health industry. Facts & figures Edition 2016"

Another important aspect preventing social security contributions from insured persons and employers from quickly spiraling out of control is more prevention. According to the estimates of the research team headed by Thomas Miller, extending the lifespan of the entire population by one year through prevention could reduce the costs in the German health care system by about ten billion euros. According to HSH Nordbank, the cost of treating illnesses such as diabetes, osteoporosis and cancer in the age group of 65 or older alone amounted to EUR 84.4 billion in 2017, amounting to roughly one quarter of the total German healthcare costs.