Spanish and Portuguese hospital groups show us the future of European private healthcare

Like most healthcare REITs, Healthcare Activos is primarily focused on investing in nursing homes. But since 2018 it has begun investing in hospitals as well. It currently has a portfolio of six hospitals spread across Spain and Portugal, worth a total of €200 million. But Co-CEO Alberto Fernandez tells us the plan is to roughly triple the size of this portfolio, to around €600 million, over the next 2–3 years.

“The fundamentals for a real estate investor are essentially the same in the hospital sector as in the nursing home sector: if you do it right you can have guaranteed demand for the next thirty years,” Fernandez says. “But there are some important differences: elderly care is a bit more like investing in residential real estate because the buildings are for living, whilst hospitals are more critical infrastructure. They have to be really purpose built, and it’s even more important to have knowledge of the operations. Also, the capex requirements are much higher. Because of this, you have to be even more cautious with rent cover. Whilst in elderly care we aim for rent cover of 1.8x–2x, in hospitals it’s more like 2.5x.”

Because hospitals are much more complex than nursing homes, focusing on partnering only with operators with a strong financial position backed up by efficient and high quality care provision is even more paramount for real estate investors. Relatedly, the way the country’s healthcare system is set up is an important consideration. Fernandez tells us Activos is only interested in buying hospitals in countries with a significant private pay sector.

“We like the private part of countries with NHS systems, which is why we’re already present in Spain and Portugal, and we’re very actively looking at the UK and Italy. We’re not interested in investing in the Bismarckian systems of France, Germany, or Benelux, because the privately run facilities in these countries are mostly publicly funded,” he explained.

According to Fernandez, the fact that private groups in Bismarckian countries are beholden to statutory payors means the care that they provide is lower quality than privately funded operators, because it is driven by short-term thinking rather than what’s best long-term. “We’re firm believers that privately operated and privately funded hospitals are a better place to invest your money. Privately operated and publicly funded hospitals don’t have the right dynamics, because the regulatory and financing limits don’t let the market evolve in the right way. They’re not driven by effective KPIs, and this creates inefficiencies in the system. That’s why the private groups in Germany are not performing well, and the groups in Spain and Portugal are performing so much better.”

Michael Sen, CEO of listed German hospital group Fresenius Helios, which also owns Quironsalud in Spain, expressed a similar view in an interview with German newspaper Frankfurter Allgemeine Zeitung in September 2024, saying: “In Spain, there is basic [NHS] care, and then there is [private care funded by] private insurance. [In the private sector] you are competing to attract patients. And that means that in Spain the focus is on the patient and their satisfaction. Patients are satisfied when the clinical performance is good and everything else is good. There is competition for the best doctors and a drive towards more innovation.”

“We visited one of our Quirónsalud clinics in Barcelona a while ago and it felt like a four-star hotel. You can automatically log in with an appointment, like at the airport. For the anamnesis, i.e. the recording of the patient’s history, you’ll be taken to a room with a sofa that’s set up like an Apple store. A doctor will either be there directly, or he’ll be connected via a monitor.”

Fernandez also highlighted to us the fact that digitalisation is much more advanced in Spanish and Portuguese groups: “In Spain and Portugal if you look at the apps for groups like Quironsalud or Luz Saude or Lusíadas it’s amazing. You do everything on the app: all the diagnostics are on there, you book all the doctor appointments there. It’s all very well integrated and coordinated. That’s the future.”

However, digitalisation shouldn’t be viewed as the be-all and end-all for achieving efficiency. “Digitalisation is just the tip of the iceberg. Digital tools are just a way to organise things. What matters is all the processes that go in the background. It’s by coordinating and optimising these processes that you can provide care that is both better quality and cheaper.”

Crucially, Fernandez believes that it’s only really possible to properly optimise all the processes if the hospital group has control over the entire patient pathway, which they don’t in statutory-funded systems. “In Germany you have a lot of outpatient or doctors offices. In Spain and Portugal this doesn’t exist in the private sector; everything is already integrated into the hospital system. The fact that inpatient and outpatient care is separated in Germany is one of the major issues creating inefficiencies in the system. Operators need a holistic view of the patient.”

“German hospitals are quasi-hotels: it’s the doctor who’s taking all the decisions and is driving the value of the care pathway for the patient, but an individual doctor can only know so much about a patient. In privately funded hospital systems the entire care pathway is managed by the hospital group, so you can really optimise and take a holistic view. France is similar to Germany in having this inpatient-outpatient sector split.”

Again, this aligns with Michael Sen’s thinking. He told the Frankfurter Allgemeine Zeitung: “The main thing is to achieve a much closer integration of health services, outpatient treatment and inpatient treatment. This will make the [German] system much more efficient. For example, with the current state of the art, you don’t need to stay overnight in hospital for a simple knee operation. But that is often the case in Germany. In Spain, on the other hand, we have a much, much larger outpatient network and there are far fewer overnight stays after knee operations. It’s about managing the population better with regard to health services, and we will be doing more of that in the future.”

Europe’s ageing population means a lot will need to be invested in new hospitals over the coming years, as well as new nursing homes. “The ageing population is a critical factor for hospital demand: 50% of hospital discharges are of patients above 65 years old,” Fernandez explains. Consequently, Fernandez estimates about €100 billion will need to be invested in new hospitals over the next 10–15 years.

Fernandez doesn’t see the fact that it is difficult to do newbuilds because of high construction costs being a major barrier: “As you know, we love greenfields, so we’re very focused on investing in greenfields. The good thing about newbuilds is you’re designing it from scratch and you can design it to provide better and more efficient care that is sustainable in the long term. Yes, construction costs have gone up a lot, but you can get better profitability with a better design that is optimised to reduce operational costs. Ultimately, we are long term investors and construction costs can be better absorbed in a long term project with sustainable returns.”

“New hospitals are going to look a bit different from the older ones. The sector is shifting away from 40,000 sqm big general hospitals, towards more specialised smaller hospitals around 10–15,000 sqm. These might be focused on a limited number of core specialities. They might be linked up with smaller and larger facilities, so that you have a hub linked to smaller satellite hospitals, and then these hospitals have their own satellite clinic. For example, you might have a diagnostic clinic in the centre of Bristol, but for major outpatient or inpatient care you go to a larger hospital on the outskirts of the city. This works very well. But it’s important that it’s the same group that controls the entire pathway.”

“We’re fundamental believers that healthcare is a virtuous circle: if you focus on providing efficient care that’s best for the individual, best for society (that needs to fund it, either publicly or privately), and best for the operator, who can spend more on IT, tech, processes and be more profitable if it’s more efficient.”