Australian Healthcare Industry – Basic Overview by Sutherland Global Services

Australian Healthcare Industry – Basic Overview December , 2012

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HEALTHCARE PROVIDERS

Healthcare Providers - Overview Summary • In Australia, healthcare services are offered by both public and private hospitals for both non-admitted and admitted patients – Services for no admitted patients include emergency department services and outpatient clinics – For admitted patients, they include emergency and planned (elective) care, maternity services, and medical and surgical services • The number of hospital beds increased by 2.5% between 2006–07 (82,582 beds) and 2009–10 (84,648 beds), an annual average increase of less than 1% – There was a relatively large decrease for public psychiatric hospitals over this period, reflecting the continuation of the long-term trend to deinstitutionalize services for people with mental illness, and the trend to integrate specialist psychiatric services with public acute care hospital services • A total of 681 public hospitals with 56,545 beds (98% of public hospital beds) were known to be accredited as on 30 June 2011 – These hospitals provided 99% of public hospital separations (completed episodes of admitted patient care) and 98% of patient days (days spent in hospital as an admitted patient) – According to ABS, 2009-10, a total of 543 private hospitals and 27,045 private hospital beds (93% of hospitals, covering 97% of beds) were accredited that year

Total Number of Public & Private Hospitals NSW

Vic

Qld

Tas

ACT

Total

No. of Beds

Public hospitals

218

150

166

735

55789

–

1983

226

151

170

752

Private free-standing day hospitals

303

2822

Other private hospitals

285

24926

Total private hospitals

177

166

106

588

All hospitals

403

317

276

152

139

1,340

Public acute hospitals Public psychiatric hospitals Total public hospitals Private hospitals

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Australia’s healthcare providers sector value is expected to grow at an average rate of ~9% till 2016 Healthcare providers sector category segmentation (2011)

Australia healthcare providers sector value ($ billion) 10.7%

200

9.8%

9.9%

9.5%

10%

8.2%

150

6.8% 8.4%

100

Inpatient Care 37.5m 31.5%

7.8%

6% 4%

0.6%

Collective Services 13.1m 11.0%

12%

Medical Goods 16.1m 13.5%

92.6

102.5

103.1

111.5

119.1

130.8

143.7

157.4

170.6

184.0

0% 2007

2008

2009

2010

2011

2012E

$ Billion

2013E

2014E

2015E

% Growth

2016E

Long-term Care 21.7m 18.2%

Comments

Distribution of Beds Across Australian States (2010-2011) 100% 80% 60% 40% 20%

30.5% 27.8% 17.4%

18.6% 37.7%

23.5% 25.8%

37.3% 27.1% 21.0%

13.6%

27.8%

27.2%

28.9%

41.4% 74.4%

25.8%

54.3% 29.8%

27.5%

7.6%

27.6%

9.6%

16.9%

23.7%

0% NSW Vic Qld 10 or fewer beds

Tas ACT NT Total More than 10 to 50 beds

More than 50 to 100 beds

More than 100 to 200 beds

More than 200 to 500 beds

More than 500 beds

Outpatient Care 30.7m 25.8%

• The Australian healthcare providers sector approximately generated total revenue of $119.1 billion in 2011, representing a compound annual growth rate (CAGR) of 6.5% between 2007 and 2011 – The performance of the sector is forecast to accelerate, with an anticipated CAGR of 9.1% for the five-year period 2011 - 2016, which is expected to drive the sector to a value of $184 billion by the end of 2016 • Bed Distribution - The majority of beds were in larger hospitals and in more densely populated areas – In 2010–11, the largest public hospital had over 1,000 beds, but over 70% of hospitals had fewer than 50 beds – The proportion of hospital beds in different size hospitals varied greatly by state and territory

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Top healthcare providers operating major hospitals across Australia Healthscope • Healthscope operates over 4,500 inpatient beds across 33 hospitals, 4 dedicated mental health hospitals and 4 rehabilitation facilities. Healthscope also manages 3 hospitals on behalf of the ACHA Group in South Australia • For the year ending June 2011, Healthscope generated revenue of $1.43 bn with $ 201.8 bn EBITDA

Ramsay Healthcare • Ramsay Health Care operates 116 hospitals and day surgery facilities across Australia, the United Kingdom, France and Indonesia • Ramsay Health Care facilities cater for a broad range of health care needs from day surgery procedures to highly complex surgery, as well as psychiatric care and rehabilitation. With circa 10,000 beds, the Company employs over 30,000 staff across four countries and treats over 1 million patients per annum • For the year ending June 2011, Group had 68 hospitals in Australia with overall revenue of $3.7 bn

Primary Healthcare Limited •

Primary is a leading medical centre operator in Australia with operations in all states and territories (with the exception of Tasmania and the Northern Territory) – 87 Medical Centers - Revenue $274.6 mn – 87 Pathology Labs, 782 Collection Centers – Revenue $740.1 mn – 161 Diagnostic Imaging sites – Revenue $285.0 mn

Sonic Healthcare Limited • Sonic Healthcare Limited is an Australian company that provides laboratory pathology and radiology services • It has a presence in Australia, New Zealand, USA, United Kingdom, Germany, Switzerland, Belgium and Ireland, now being the largest provider in Australia and Europe and the third largest in the USA. – Australian Pathology business constitutes 30% (AUD 923 mn) of overall revenues (AUD 3.1 bn)

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Top 10 Australian Hospitals #

Hospital

Location

No. of Beds

Melbourne

More than 500

Royal Melbourne Hospital

Royal Brisbane and Womenâ&#x20AC;&#x2122;s Hospital

Westmead Hospital

Royal Adelaide Hospital

Sir Charles Gairdner Hospital

Monash Medical Centre

Princess Alexandra Hospital

Brisbane

Geelong Hospital

Geelong

Gold Coast Hospital

10.

Liverpool Hospital

Brisbane Sydney Adelaide Perth Melbourne

Southport Sydney

Patients Admission/Year 85,400

More than 500

74,900

More than 500

69,600

More than 500

67,800

More than 500

64,800

More than 500

63,900

More than 500

63,600

200-500 More than 500 More than 500

58,200 57,800

56,900

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Australian healthcare payer ecosystem is shared by government as well as private healthcare payers HEALTHCARE PAYERS

Government Healthcare Payer System • Medicare is Australia's publicly funded universal health care system, operated by the government authority Medicare Australia – More than two-thirds of the total expenditure on health care in Australia in 2009–10 was funded by governments, which is about the same as each year in the previous decade – The Australian Government funded almost two-thirds (62%) of government health spending, with the balance provided by state and territory governments • Residents with a Medicare card can receive subsidized treatment from medical practitioners, nurse practitioners and allied health professionals who have been issued a Medicare provider number, and can also obtain free treatment in public hospitals – The program was estimated to cost $18.3 billion in 2007–08 and the figure was projected to rise by almost 4% annually in real terms over the next few years • Since 1999, the public health scheme has been supplemented by a Private Health Insurance Rebate, where the government funds at least 30% of any private health insurance premium covering people eligible for Medicare

Private Healthcare Payer System • The private health system is funded by a number of private health insurance organizations – Private Healthcare Australia, formerly known as the Australian Health Insurance Association, is the Australian private health industry’s peak representative body that represents 23 health funds throughout Australia and collectively covers over 95% of the private health insurance industry – Private Healthcare Australia member funds today provide healthcare benefits for approximately 12 million Australians • The largest of these is Medibank Private (Revenue 2010-11: $4.7 bn), which is government-owned, but operates as a government business enterprise under the same regulatory regime as all other registered private health funds • Since 2000, membership in terms of people covered for hospital treatment has grown by 24.5%, and as at 30 June 2011, the total number of hospital treatment policies was 4.97 million, covering 10.26 million people—a 2.8% increase when compared to 30 June 2010

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Top five private health insurers cover ~84% of the total market share Industry Structure

Market Share as of June 30 2011 40%

2000

2005

2011

No. of insurers

341

Open access

For-profit market share

12.50%

15.90%

68.60%

Total premium revenue

$5.46b

$9.38b

$15.42b

Total benefits paid

$4.51b

$8.24b

$13.16b

Total assets

$3.26b

$5.87b

$9.49b

For-profit

30.6%

26.9%

30% (%)

Year

20%

16.3% 10.5%

10%

($ billion)

4.0

3.1 2.5

1.5 1.0 0.3 NSW

1. 2. 3.

Total Benefits Paid = $12.5bn

VIC

QLD

TAS

0.1 NT

8.2%

0% MPL/AHM

BUPA

Total Healthcare Benefits Paid by Private Insurance (2010) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

7.5%

HCF

NIB

HBF/H’guard Rest of hospitals

Comments • In recent years, private health insurers have experienced significant growth in benefit outlays – In 2010-11, private health insurers paid more than $13 billion in benefits to members, an increase of 4% compared with the previous year ($12.5 billion) – Benefits paid to members are around 86% of total premiums paid by members – Benefit outlays are forecast to increase by 9.4% in 2012-13 • Competition in the broader healthcare system - The governments of the States and Commonwealth have agreed to significant reform of the public health system which, when implemented, will see greater competition between the two sectors(public & private) for service provision

As at 30 June 2011 there were 34 insurers, however the statistical tables list 35 insurers as they include Manchester Unity Australia Ltd (MU) data applicable to 2010–11. The health benefits funds conducted by the three BUPA Australia group insurers were merged on 1 July 2010. The health benefit funds conducted by HCF and MU were merged on 30 June 2011

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Double-Digit Growth for Australian Telehealth driven by aging population and ease of remote monitoring Australian Government’s Telehealth Initiative • As part of Prime Minister Julia Gillard’s $620 million telehealth initiative, the Australian government is funding video hook-ups between medical specialists and patients – The nation’s Medicare program is offering 50-percent bonuses to specialists who adopt telehealth technology and 35-percent bonuses to doctors, nurses and midwives who participate in video consults with patients – As part of National Digital Economy Strategy, Gillard is pushing for roughly 500,000 telehealth consultations per year within four years – Australia’s telehealth services are supported by the $36 billion (US$38 billion) NBN roll-out, offering affordable broadband to homes, doctor surgeries, pharmacies, clinics, aged-care facilities and allied health professionals – Six months after introducing Medicare rebates for telehealth consultations, in January 2012, the uptake has grown steadily – with more than 7,000 services provided by over 1,200 clinicians nationally, mostly to rural and remote areas • The Australian telehealth market is expected to grow at CAGR of almost 30% through 2017 driven by higher use of telehealth monitoring • In 2010, the Australian telehealth market was one of the fastest growing segments within the global patient monitoring market • Use of Telehealth Monitoring is on the rise driven by aging population of Australia and benefits like - eliminating the need for in-office follow up visits, thereby reducing the time and money patients spend on traveling to clinics • Australian manufacturer TeleMedCare is leading this market segment with its TeleMedCare Health Monitor, which can measure weight, temperature, blood pressure, blood glucose levels, and lung and heart function

Key TeleMedicine Solution Providers Medibank Health Solutions • Medibank Health Solutions is a leading provider of telephone and web-based health care services in Australia and New Zealand • Medibank Health Solutions has over ten years experience in delivering targeted outbound ‘support’ calls aimed specifically at engaging and triaging participants into appropriate health programs with 10,000 outbound ‘support service’ calls per week • Providing telehealth services 26 million people in Australia and New Zealand • Medibank Health Solutions generated $258 mn revenue in 2010-11

Healthways Australia • Healthways Australia is a telehealth company providing clinician led health and social programs for individuals, workforces and communities • Since 2009, over 1 million people currently have access to comprehensive program of fully integrated care and health management services, including chronic disease support and wellness programs

Telemedicine Australia • TeleMedicine Australia (TMA) is the first supplier of telemedicine technology at primary care and aged care levels in Australia • This includes telemedicine solution (AUSTMS), telemedicine peripherals, telemedicine encounter management software and telemedicine solution for Home care (HiCare). • Solutions provided are TeleRoom, Telemedicine Software, Telemedicine Peripherals

Source: HealthcareIT; Pharmacy Daily; mddionline; Australian Telehealth Society © 2012 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Australian healthcare IT spend is expected to hit $2.4 billion by 2016 Industry Insights • Spending on healthcare IT in Australia is expected to hit US$2.4 billion in 2016, a cumulated annual growth rate (CAGR) of almost 10 per cent from 2010, predicts Ovum in its latest healthcare IT market forecast – According to Ovum’s figures, investment in Australia’s healthcare IT market was expected to reach only $1.5 billion in 2011, far less than that in North American and European markets – Digital imaging solutions, especially picture archiving system (PACS), will continue to be the key investment area for Australia, closely followed by expenditure on electronic health records (EHRs) – Telehealth, where services such as the monitoring of conditions are delivered via telecommunications technology and EHRs, are expected to have the strongest growth, with CAGRs of 14.1% and 12.1% respectively • The 2010-2011 Federal Government Budget confirmed an investment in health reform and information technology – The Budget included spending of $7.3 billion over the next five years to realize the National Health and Hospitals Network (NHHN ) – An additional $2.2 billion of investment has been allocated with $467 million over two years earmarked to introduce personally controlled electronic health records (e-health initiative sponsored by the government to link EMR systems and HCIT applications across the country) for every Australian who wants one, starting by July 2012 – The Federal Government investment is also a strong ‘market signal’ of support for e-Health and allows Australia to regain its position alongside the United Kingdom (UK ), Canada and several Western European countries commonly observed to be more progressed than Australia in implementing large-scale e-Health initiatives • Australian healthcare sector is estimated to invests approximately 1.8% of operating expenses, which is half of the worldwide average of 3.6% in healthcare IT

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End of Presentation