Open up or be opened up

August 2018 – The German health care market is a growth story without equal. It is increasingly attracting new competitors to the market, which are challenging established providers with digital business models. In the current “Health Care Industry Study”, HSH Nordbank examines the monumental upheavals occurring in the sector, the business models that show the most promise in the long-term, and why health still receives too little attention compared to illness.

German entrepreneurs generally look at developments in Silicon Valley with a mixture of excitement and fear. Excitement about the dynamism with which ideas and business models spring from the ground in the Californian tech Mecca. And, definitely with fear, because this often has the potential to threaten their own market position. The health care industry is no exception: Amazon has recently ventured into this new market and founded its own health insurance fund. The world’s leading E-commerce provider believes that modern IT and, in particular, data technology, will allow it to reduce administration costs significantly in the health care industry and structure treatments much more efficiently. While this is only available for its own employees for the time being, Amazon experts think that this will only be the case for the first test run. A look at the stock exchange, where future activities are generally already priced in, reaffirms this perception: After announcing Amazon’s entry into the health care sector, the share prices of other US insurers suffered a significant drop.

Prevention and health protection as minor considerations

Health expenditure 2016 (356 billion) by type of benefit

Health expenditure 2016 (356 billion) by type of benefit - Prevention and health protection as minor considerations


Source: Statistisches Bundesamt

Its competitor Apple, in a constant duel with Amazon in the rank as the world’s most expensive listed tech company, does not want to be left behind: CEO Tim Cook has already publicly identified the health care sector as one of the key growth markets for his company. A special business area is focused on the development of modern health services – initially only for its own workforce, as is the case for Amazon. But, this will likely also not remain the case for Apple once it records initial successes.

Health spending of a billion euros a day

“The signs from Silicon Valley are definitely also being noticed in Germany”, says Sandro von Korff, Head of Health Care at HSH Nordbank. The local market for health services – whether provided at the doctor’s office, hospital, in rehab, at the massage practice or the pharmacy – is one of the largest in the world. Germany spends more than a billion euros on health every day. A total of 374 billion euros were spent in 2017. Seven million people work in the industry, which has been growing more rapidly than Germany’s overall economy for many years. The size of this pie is bound to arouse interest.

But, at the moment, the possible entry of a US IT company into Germany’s highly fragmented health care market is still up in the air. In other words: The fate of German health care providers – whether statutory health insurance funds, private insurers, pharmacies, hospitals, medical technology suppliers or specialized service contractors – largely still lies in their own hands as they prepare themselves for the future to ensure sustainable success on the market.

The challenges faced by the industry, what possible responses could look like, and which business models show the most potential in the long term, were discussed by 100 experts and leaders in this spring at HSH Nordbank’s first “Health Care Day” at the Hamburg Speicherstadt. The bank now presents the results of the presentations and forums in this “Health Care Industry Report”.

“The signs from Silicon Valley are definitely also being noticed in Germany.”

Sandro von Korff, Head of Health Care at HSH Nordbank

Big Data and health are merging

medicine is becoming more personalized, commercial, as well as global

The key verdict, which was supported by expressed opinions: The topics of health and digitalization are merging rapidly with the consequence that medicine is becoming more personalized, commercial, as well as global. “These days, strategic thinking does not end at the German health care system. Competition is global”, says Sandro von Korff. Anyone who does not open up to this competition will simply be opened up and consequently disappear form the market.

By contrast, the future belongs to those who take action. Numerous innovative health providers held presentations at the HSH Nordbank Health Care Day, some of which are tackling the future of health care on their own, some in cooperation with established providers. “At the moment, we are seeing a number of exciting business models in the health care sector”, says Sandro von Korff. But, not all ideas will survive. DocMorris CEO Max Müller is convinced that ultimately only those business models “that are accepted by the patients” will be sustainable.

Demand for mini-docs for the wrist or breast pocket

Global sales of wearables (in million)

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


Source: IDC 2018

The new competitors and challengers are not just attacking the established market leaders – they are also bringing about structural change on the market. In particular, the ideas introduced by data-driven tech companies are creating more streamlined and faster processes, relieving the administrative burden on doctors and hospitals, and eliminating the duplication of work – and so creating more space for the actual doctor-patient relationship. In particular, “Artificial intelligence is a huge opportunity to relieve doctors of routine activities”, believes Dr. Arthur Kaindl, General Manager Digital Health Services at Siemens Healthineers.

This development can only be positive – especially with a view to the cost development in the health care sector. Because, at its core, the German health care system is an “unbalanced” system that is singularly focused on treating diseases. Just over 3 percent of all health spending is spent on prevention or the important early detection of diseases. Everyone knows: Early intervention massively helps improve the chances of recovery and reduce costs.

“These days, strategic thinking does not end at the German health care system. Competition is global.”

Sandro von Korff, Head of Health Care at HSH Nordbank

Better and more efficient health management is the key requirement of our times. This applies for the entire industry as well as for every single person. The advancements in telemedicine and genome sequencing are also constantly giving people more opportunities to take their health into their own hands. This is clearly demonstrated by the rising sales of “wearables” – small measurement devices to improve or control a person’s blood or fitness values.

Big Data and health are merging. But more importantly: “Big Data can also make us healthier, because it allows us to achieve a better match, a better fit between the individual, our metabolism, our illness, and diagnosis and treatment. Diagnosis and treatment were previously primarily based on an average view of average patients. In future, this can be personalized. This not only means greater efficiency, but also a better quality of life”, expects Viktor Meyer-Schönberger, Professor for Internet Governance and Regulation at Oxford University.

“Germany has enormous potential, all the necessary building blocks for innovation are there. It is now up to us to use these to design functional products and services for the medicine of the future.”

Dr. Dominik Pförringer, Specialist in Orthopedics and Trauma Surgery at the Hospital rechts der Isar at the Technical University of Munich

This view is shared by Dr. Dominik Pförringer, Specialist in Orthopedics and Trauma Surgery at the Hospital rechts der Isar at the Technical University of Munich. Maximum data security is a fundamental requirement; the German health care industry would then also hold all the aces in the competition with the tech companies from the USA. “Germany has enormous potential, all the necessary building blocks for innovation are there. It is now up to us, courageous movers and shakers, to use these to design functional products and services for the medicine of the future.” HSH Nordbank expert Sandro von Korff also has high hopes for the future of German health care: “The entire, multifaceted industry offers unbelievable potential.”

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: CB Insights 2017

Industry Study „Health: New Strategies in a Growing Market“

The new industry study deals with the future challenges for the health industry and explains possible solutions for the strategic embedding of these developments. The study is available in German only. You are interested in the complete survey? Simply send an e-mail with the subject „Gesundheit – Strategien in einem wachsenden Markt“ to sandro.vonkorff@hsh-nordbank.com and you will receive the complete study.