What plans does the shipping company MSC have for Hirslanden?

Larger rooms, more choice of food, more expensive medication and, above all, access to senior doctors or even the chief physician: patients with additional insurance benefit from various advantages during hospital stays compared to those who only have basic insurance. But in Switzerland, fewer and fewer people can afford insurance that covers the costs of semi-private or private treatment.

Hirslanden, Switzerland’s largest hospital operator by far, is also exposed to this trend. Three years ago, for the first time, more than half of the patients treated in the group’s 17 private clinics had basic insurance. This figure now stands at more than 52 percent.

Why do you need additional hospital insurance?

Since most private clinics in Switzerland are listed hospitals and therefore also accept people with basic insurance, more and more insured people are foregoing supplementary hospital insurance. The Hirslanden clinic in Zurich, which gave the group its name, was added to the canton of Zurich’s hospital list in 2012. At that time, people with supplementary insurance were almost all alone in this facility. Now, more than 40 percent of the people treated there are people with basic insurance.

Patients with basic insurance are significantly less profitable for hospitals than patients with supplementary insurance. As Hirslanden openly admits, they are often a loss-making business because tariffs do not cover costs. At best, they generate a small margin.

Nursing staff push through high wage increases

At the same time, those with basic insurance largely use the same infrastructure as patients with supplementary insurance – in an environment where costs for almost everything are currently rising.

Since the outbreak of the corona pandemic, Hirslanden, like all hospital operators, has been hit by a sharp rise in costs, says its boss Daniel Liedtke. The biggest increase for the group has been in the wages of nursing staff. According to Liedtke, salary increases are often in the double-digit range.

Because too few young people have been trained for years and hospitals are losing many of their existing specialists year after year due to the high workload, employees have a lot of bargaining power. This is particularly evident in the case of temporary workers, whose costs can now exceed those of permanent employees by 40 to 50 percent.

Operating margin falls again

Due to inflation, many other expenses for hospitals, such as those for energy, medical equipment and consumables, have also increased over the past three years. All of this is weighing on Hirslanden’s profitability.

In the past financial year (ending March 2024), according to Zürcher Kantonalbank (ZKB), the return on sales at the EBITDAR level (operating cash flow before rental costs, which hospitals often exclude) fell by a further 1.4 percentage points to 13.3 percent. Seven years ago, this figure was still at 22.5 percent, the ZKB points out.

Compared to other Swiss hospital operators, Hirslanden’s profitability is still impressive. Most public hospitals in Switzerland have recently found themselves in even more difficult waters and are often making high losses. ZKB analysts point out that of the 14 public hospitals whose creditworthiness they assessed, the Limmattal hospital group performed best with an EBITDA margin of 7.3 percent.

Sister companies abroad operate more profitably

Hirslanden’s operating performance is less flattering when compared with its two sister companies in South Africa and the United Arab Emirates. Hirslanden has been owned by the international private hospital group Mediclinic since 2007, which operates in the Emirates as well as its home market of South Africa. In the past financial year, the company achieved an EBITDAR margin of 18.2 percent and 14.6 percent respectively with its hospitals in South Africa and the Emirates. The Swiss business is the group’s largest mainstay, accounting for 47 percent of sales.

Hirslanden is under pressure to stop the loss of margins as quickly as possible. In order to be able to retain the remaining supplementary insured people, the company must continually renew its infrastructure. For example, Hirslanden advertises that it offers supplementary insured people robot-assisted operations, the costs of which are not covered by basic insurance or are only covered in certain cases. In order to be able to afford such investments, the company is dependent on a sufficiently high margin, especially since, unlike public hospitals, it does not receive deficit guarantees from the state.

Job cuts at the headquarters in Opfikon

Due to the high cost pressure, Hirslanden has decided to reposition itself. “We have to get ready for the next decade,” says Liedtke. The hospital operator wants to focus more on automation in administration. At the beginning of March 2024, the company announced that it would lay off up to 80 employees at its headquarters in Opfikon. According to Liedtke, 56 people have now been laid off. They had previously worked as project managers, in marketing or in human resources.

While the company is implementing savings, particularly in administration, it is also required to quickly increase bed occupancy. In the past two years, entire wards have been closed due to a lack of staff. Bed occupancy recently reached just 66 percent.

The aim must be to increase this figure to 80 percent across the group, says the head of the hospital group. As Liedtke reveals, if the figure falls below 70 percent, operations come to a standstill because employees start to slack off. On the other hand, rates of more than 90 percent in bed occupancy, as was achieved in many hospitals at the height of the corona pandemic, quickly create stress that becomes dangerous for patients and staff.

“Inspiring” new major shareholder

It is unclear what specific expectations the two owners of Mediclinic have of Hirslanden. Since last year, the hospital group has been the sole owner of the financial vehicle Manta Bidco, which in turn is controlled equally by the listed South African investment company Remgro and the Geneva shipping company MSC. The majority owner of Remgro is the Rupert family, which also controls the watch and jewelry group Richemont, among others, and the Italian-born Aponte family is behind MSC.

When asked, Remgro explained that it sees itself as a long-term strategic partner of Mediclinic. MSC did not want to comment on its involvement. The Aponte family has a firm grip on the reins of the world’s largest container shipping company, which is also big in the cruise business. At Hirslanden, her role is seen as “inspiring”. She knows how the business of private clinics works, according to the headquarters in Opfikon.