Long Term Healthcare Industry

Source: JP Morgan, Lehman Brothers

• The UK home medical equipment market had sales of, approximately, $4.1bn in 1999 and is expected to grow an average of 10% annually through 2005, reaching estimated sales of $7.3bn (Clinical Reports, February 2002)

Source: Clinica Reports, February 2001

• The principal diagnosis of home care patients in 1998 were:

1. Diseases of the circulatory system                                33.5%
2. Heart disease                                                        18.9%
3. Injury and poison                                                14.7%
4. Diseases of the respiratory system                                11.1%
5. Endocrine, nutritional and metabolic diseases

and immunity disorders                                         10.3%

6. Diabetes mellitus                                                7.9%
7. Neoplasms (tumors)                                                7.0%
8. Essential hypertension                                        5.5%
9. Diseases of the digestive system                                5.2%

(National Association for Home Care, September 2002)

Trends

• Home care supposes great savings compared to hospital care: Average daily payments made by Medicare in 2000:

• Hospital charges                $2,753
• Skilled nursing facility charges        $421
• Home care charges                $100

(National Association for Home Care, September 2002)

• By 2030, 20% of the population will be over 65, putting an enormous burden on healthcare costs. (National Center for Health Statistics, 2002)

INSTITUTIONAL LONG TERM HEALTHCARE

Nursing Facilities and Hospices

Hospices focus on palliative rather than curative care and are directed towards enhancing the quality of life.  Here pain control and maintenance of functional abilities are emphasized.

Interdisciplinary personnel at hospices include physicians, nurses, nurse aides, counselors, social workers, therapists, and volunteers.

• Since 1994 the number of hospices in the US has grown to more than 3,100 with the total number worldwide reaching over 7,000. (St. Christopher’s Hospice, 2001)

• Of the 230 hospices dotted around the UK, a few are NHS-run, others are managed by specialist charities such as Marie Curie Cancer Care, but the vast majority (185) are independent, voluntary set-ups. (The Guardian, February 2001)

Other Specialised Long Term Care Institutions

These are hospitals with long term or extended care sections or specialised chronic care facilities like mental institutions, AIDS care facilities or kidney dialysis clinics.

These institutions may have patients for a determined or undetermined period of time under constant observation and treatment (i.e., just after a heart attack a patient may spend some days or weeks under observation in the extended care section of a hospital) or have patients going for regular visits (i.e., persons that need constant dialysis treatment for failure of their kidneys often have to go regularly  - for example, three times a week) to dialysis clinics for treatment).

• 217,000 Americans receive ongoing dialysis at an annual cost of $11.1bn nationwide. (US FDA)

Ageing Population

• 13% of the US population in 2000 were aged 65 or over. (Knowledge Source, September 2002)

• Americans over 65 years old will double over the next twenty years from 35 million today to roughly 70 million in 2020. (US Census Bureau, 2002)

• At present there are 9.3 million over-65s in the UK and of those, 1.2 million are over the age of 85. By 2031 these figures are projected to increase to 15 million and 2 million respectively. (Watson Health, 2002)

• In 2000, approximately 2.1 million people, which represented 6% of all persons aged 65 and over in the US were living in a nursing facility – in 1990 they were 5%. This percentage is expected to increase to 8.4% by 2050, when the population aged 65 or older is expected to reach 20% of the total population of the US. (Knowledge Source, September 2002)

Regulation and Budgetary Trends

• In an effort to reduce costs, many hospitals are reducing the time patients spend in intensive care units (ICUs) and critical care units (CCUs) by moving them into general medical/surgical rooms or home healthcare environment. (Frost & Sullivan, February 2001)

• The home health agency industry struggled after the Balanced Budget Act in 1997 in the US, under the interim payment system. But the new prospective payment system, appears to be a great improvement and has encouraged providers to streamline operations and efficiently deliver services, offering high opportunities for key players in the long term healthcare market. (CMS, 2002)

• Healthcare reforms throughout Europe over the last decade have resulted in a decline in average in-patient stay time and a decline in the number of hospital beds, leading to a shift away from the traditional hospital setting towards alternative care sites, such as long stay environments and the patient’s home. (Frost & Sullivan, December 2001)

• The average daily rate of reimbursement for a home-based respiratory therapy patient is much lower than treatment in institutional settings. (Merrill Lynch, 2002)

• A combined US budget bill passed in late December 2000 increased Medicare payments to health maintenance organizations over the next five years while also expanding Medicare reimbursement for telemedicine in a variety of care settings, like home care. (ATA, January 2001)

Technology Advances

• New technological developments are enabling home healthcare to be delivered more cost-effectively and therefore making it truly the lowest-cost alternative while preserving the quality of care. (Clinica Reports, February 2001)

• New healthcare technology developments include telehealth and telemedicine technologies as well as advanced devices for performing sophisticated therapy in the home, which allows more efficiency in the home treatment. (Clinica Reports, February 2001)

• With the development and expansion of the homecare markets, demand for a new range of medical devices suited for ambulatory care has been created – such as demand for infusion therapy devices and implantable ports. (Frost & Sullivan, December 2001)

Patients’ Desire to Stay Home

• Patients prefer to receive as many health services as possible in the home versus staying/visiting healthcare facilities. (Merrill Lynch, 2002)

• There is a growing preference by patients to be treated at home and to take more control of their health management. (Clinica Reports, February 2001)

• More chronically and terminally ill patients are choosing the home as a more comfortable setting than institutional care. (Kalorama Information, May 2002)

Shortage of Physicians

• America’s rapidly ageing population faces a looming healthcare crisis: a shortage of physicians trained in geriatrics. This is a trend affecting Western countries and one being envisaged directly by governments with a view to increase spending and investment. (Home Health Provider, November 2002)

RESPIRATORY THERAPY EQUIPMENT AND SERVICES

Respiratory therapy is the delivery of oxygen therapy, respiratory medications and sleep disorder products to patients with conditions such as chronic obstructive pulmonary disease (including emphysema and chronic bronchitis), asthma, lung cancer and sleep apnea.  These diseases carry the obstruction of air flow to the lungs.

Respiratory therapy equipment can be used in both long-term care facilities or in homes. Services typically include:

1. Oxygen systems – they consist of:

1.  oxygen concentrators (stationary units that extract oxygen from ordinary air to provide a continuous flow of oxygen)
2. liquid oxygen systems (portable, thermally insulated containers of liquid oxygen)
3. and high pressure oxygen cylinders.

2. Home ventilators – they sustain a patient’s respiratory function mechanically when a patient can no longer breathe normally
3. Sleep apnea equipment – it is used for continuous positive airway pressure therapy that forces air through respiratory passageways during sleep for patients with sleep apnea
4. Nebulisers – they deliver aerosol medication to patients to treat asthma, chronic obstructive pulmonary diseases, cystic fibrosis and neurologically related respiratory problems
5. Respiratory medications – ie., albuterol sulfate,, a bronchodilator – and related services.

In addition, respiratory therapy providers employ respiratory therapists to oversee and monitor the delivery of care. These services include instructing patients about the proper use of equipment, monitoring equipment and the delivery of medication.

• Chronic Obstructive pulmonary diseases represent the fourth leading cause of death in the US – some 110,000 deaths annually. (American Lung Association)

• Health care direct expenditures in 2000 related to chronic obstructive pulmonary diseases were approximately $14.7bn in the US. (National Heart Lung and Blood Institute)

• The US domestic home respiratory therapy market is growing at a rate of 7-8% annually. (Merrill Lynch, 2002)

• The UK respiratory therapy products had sales of $566m in 1999. (Clinica Reports, February 2001)

• Home respiratory therapy industry in the US is very fragmented – more than 2,000 local providers. (CMS, 2002)

Trends

• Medicare spending for oxygen is rising following the Balanced Budget Act of 1997 in the US. (CMS, 200)

• Spending for oxygen increased by 9% from 1999 to 2000 and has stabilized in 2001. (CMS, 200)

INFUSION THERAPY EQUIPMENT AND SERVICES

Standard, orally ingested medication does not often effectively treat conditions such as cancer, gastrointestinal diseases, congestive heart failure and immune disorders and thus, physicians very often prescribe infusion therapy for these ailments.

Infustion therapies include the intravenous administration of life-sustaining nutrients, chemotherapy, which is the intravenous administration of medications to patients with various types of cancer, and the infusion of antibiotics directly into the patient’s bloodstream.

Infusion therapy equipment can be used in both long-term care facilities and homes. When used in homes, the therapy includes pharmacist services and related medical equipment and supplies, for the administration to patients in the home setting.

• The segment, within the homecare market, that is expected to grow the most is infusion therapy devices as ambulatory care often consists of some kind of intravenous infusion. (Frost & Sullivan, December 2001)

• The home infusion therapy market posted 10% to 11% growth in recent years and is expected to continue at that pace through 2006. (Kalorama Information, May 2002)

KIDNEY DIALYSIS PRODUCTS, EQUIPMENT AND SERVICES

Kidney dialysis is a life-saving treatment for people who don’t have functioning kidneys because of disease, injury or birth defects. Dialysis acts as an artificial kidney. There are two types of treatment:

• hemodialysis – the blood is circulated outside the body and cleaned inside a machine before returning to the patient
• and peritoneal dialysis – it uses the patient’s own peritoneal membrane around the abdominal organs as a filter.

About 90% of dialysis patients receive hemodialysis.

• The dialysis systems market was worth more than $5bn in 1999 and should continue to grow with the ageing of population and the health problems age carries along. (Theta Reports, 1999)

MONITORING EQUIPMENT AND SERVICES

Monitoring equipment is used to observe patients disease/problem evolution and to check body activities. It includes:

• blood pressure equipment (both invasive and non-invasive)
• Ultrasaund monitoring equipment
• Cardiac monitoring systems
• Oxygen monitors
• Diabetes monitoring equipment/products

• As hospitals reduce the time patients spend in intensive care units and critical care units and move them into general medical/surgical rooms or home healthcare environments in an effor to reduce costs, demand for cardiac output monitoring equipment (easy-to-use) is increasing. (Frost & Sullivan, February 2001)

• Diabetes monitoring products recorded total sales of about $1.2bn in 1999 and is expected to increase by 9% annually through 2005. (Clinica Reports, February 2001)

INFORMATION TECHNOLOGY

• Worldwide home care information systems markets were valued at $121m in 2001 and are expected to reach $558m by 2007 (a 78.3% increase). (MarketResearch.com, February 2002)

• US home care information systems markets were worth, in 2001, $95.7m and are expected to grow at 17% per year in 2003, with the growth rate accelerating to 27% per year by 2007, and reaching then $310.4m. (MarketResearch.com, February 2002)

Trends

• Information technology and electronic processing of transactions is expected to significantly reduce labor and error-related costs. (CMS, 2002)

• The Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires the Department of Health and Human Services to establish national standards for electronic health care transactions and national identifiers for providers, health plans and employers. (CMS, 2002)

• HIPAA also the adoption of standards in relation to security and privacy of individually identifiable health information to improve the efficiency and effectiveness of the nation’s health care system by encouraging the widespread use of electronic data interchange in health care. (CMS, 2002)

• There are indications that agencies are beginning to use telemedicine devices to effectively manage services. (CMS, 2002)

TELEMEDICINE

Telemedicine (also referred to as "telehealth" or "e-health") allows health care professionals to use "connected" medical devices in the evaluation, diagnosis and treatment of patients in other locations. These devices are enhanced through the use of telecommunications technology, network computing and video-conferencing systems.

The home care industry has increasingly used computer technology and telecommunication equipment to either provide continuous vital sign monitoring or facilitate patient care at home, rather than relying solely on in-person care

• Telemedicine products are expected to be one of the most rapidly growing portions of the home medical equipment market: they totaled sales of $105m in 1999 in the UK and are expected to nearly double to $207m by 2005, with an average annual growth rate of 12.4%. (Clinica Reports, February 2001)

• Industry analysts estimate that telemedicine programs in the US will be a $3bn market by the end of 2002 and that the market will increase by 40% each year until 2010. (Molecular Diagnostics, 2002)

OTHER LOW-TECH HEALTHCARE EQUIPMENT

• The US advanced moist wound dressing market (the largest segment of the total wound dressing market) had total revenues of $288.5m in 2001 and is expected to reach revenues of $523m in 2008 (a 44.8% increase). (Frost & Sullivan, June 2002)

• Aged population has very high rates of incidences of serious metabolic diseases, such as osteoporosis and osteoarthritis, which require careful operative and non-operative management. As this sector of the population is growing at very high speed, that is pushing sales in the orthopaedic bracing and supports market from $333.3m in Europe in 2001 to $473.3m in 2008 (a 29.6% increase). (Frost & Sullivan, September 2002)

• The US disposable gloves market had revenues of $1.39bn in 2001, and they are projected to reach $1.54bn by 2008. (Frost & Sullivan, August 2002)

• In 1999, the durable medical equipment market (wheelchairs, patient lift, mattresses, etc.) is worth $2bn in the US and $916m in the UK. (Clinica Reports and JP Morgan)

• The European therapy devices market, comprising infusion pumps, administration sets and implantable ports is now valued at $327.4 million, and is expected to increase to $353.3m in 2008 (7.4%). (Frost & Sullivan, December 2001)

• With nearly 25 million people in the US suffering from urine incontinence, demand for urological devices will increase as patients gain greater awareness of the available treatment options and products. (Frost & Sullivan, December 2001)

THERAPEUTIC PHARMACEUTICAL PRODUCTS

• Global audited pharmaceutical sales grew 12% in 2001 to reach $364.2bn. (IMS Health, April 2002)

• North American pharmaceuticals sales grew 17% to reach $181.8bn - half of all global sales. (IMS Health, April 2002)

2001 Global Pharma Sales by Region

Source: IMS Health, April 2002

Top Therapy Areas by Pharmacy Sales in 13 Leading Countries Worldwide (in $million)

October 2001 – September 2002

        

• The top 10 therapy classes of the pharmaceutical (audited) market were worth $364.2bn in 2001, accounting for 32% of the total. (IMS Health, November 2002)

Leading Therapy Classes in 2001 Global Pharmaceutical Sales

Source: IMS Health, November 2002

Some Important Long Term Care Therapeutic Fields

Cardiovascular and Related Diseases

Cardiovascular diseases and disorders may affect the heart or the blood circulation. They may cause the death of patients but also reduce considerably their quality of life.

• Diseases of the circulatory system and heart diseases account for a massive 52.5% of home care patients. (NAHC, September 2002)

• Diabetes patients accounts for 7.9% of home care. (NAHC, September 2002)

Lifestyle factors are a major reason for the spread of the disease. Obesity, sedentary way of life, smoking, and low fruit and vegetable consumption are also important factors. All these are common in urban life.

• In the USA, Medicare spent $10.8bn for treating coronary heart diseases in 1997. (Advamed, 2002)

• Heart rhythm disorders has about $30bn direct costs, such as hospital, physician and medication costs. (Advamed, 2002)

• The costs associated with congestive heart failure, in which the heart’s major chambers do not beat in a synchronized pattern, cost $8-$15bn each year in the USA. (Advamed, 2002)

• Hypertension is the most widely prevalent cardiovascular complaint in the industrialised world, and in there are at least 50m Americans estimated to suffer from the complaint and with treatment of it requiring long-term drug therapy. (WMA, August 2002)

• Of the 40 million diagnosed Type 2 diabetics in western markets, 30 million are over the age of 50 years. (Neurochem, 2001)

• Analysts estimate that the world diabetes market could be worth up to $3bn in ten years, if not more. (Neurochem, 2001)

Neurological Disorders

The central nervous system (CNS) drug market is the second-largest in the world.

• The central nervous system therapeutic market had sales of $52bn in 2001 and a growth rate of 11.9%. (Reuters, 2002)

• Antidepressants grew, in 2001, 20%, reaching sales worth $15.9bn. (IMS Health, November 2002)

• Analysts estimate that the world Alzheimer's market could be worth up to $3bn in ten years. (Neurochem, 2001)

• Currently, there is no effective treatment that can stop the progression of Alzheimer's disease but medication revenues worldwide have passed $514 million and may reach $2.4bn by 2006. (Senior Journal.com, March 2001)

• There are approximately 4 million North Americans afflicted with Alzheimer's disease, an incurable disorder that progressively destroys the brain. This number will escalate rapidly over the next decade. Just over 3 million more cases are estimated in the balance of the G7 nations. (Neurochem, 2001)

• The UK Alzheimer’s market is predicted to reach $2.5bn by 2008. (Phytopharm, 2002)

• The pain market was valued at $17.7bn in 2001, a 7.3% increase on revenues of $16.5 in 2000. (Reuters, 2002)

• The pain market has been driven by high utilization of DTC advertising by both Pharmacia/Pfizer and Merck for Celebrex and Vioxx respectively, resulting in impressive sales growth for both products. (Reuters, 2002)

Oncology

• During the last few years lung cancer accounted for almost one-third of cancer deaths in men and about one-fourth of cancer deaths in women in the US. (US National Cancer Institute, 14 May 2002)

• Among non-smokers, colorectal cancer is the deadliest form of cancer in the US – nearly 94,000 new cases diagnosed in 2001 in the US. (AdvaMed, 2002)

• Prostate cancer accounts for more than 40% of all cancers diagnosed in men in the USA. (Cancer Program Annual Report 2000)

• The number of cancer drugs in the pipeline has more than tripled in the past decade, with 402 medications now in human testing across the US. (PhRMA, April 2001)

• The number of cancer cases can be expected to increase because of the growth and aging of the population in coming decades. (US National Cancer Institute, 14 May 2002)

Arthritis and Osteoporosis

Under arthritis several diseases and conditions are included: osteoarthritis, rheumatoid arthritis, fibromyalgia, lupus and gout.

Osteoporosis is a condition characterized by low bone mass and structural deterioration. It normally affects older people.

• Injury patients account for some 14.7% of home health care patients. (NAHC, September 2002)

• Each year arthritis results in 44 million outpatient visits and almost 750,000 hospitalisations in the US. (AdvaMed, 2002)

• Nearly 44 million people in the US suffers osteoporosis, a disease that affects to 55% of all people over age 50 in this country. (eyeforpharma, 20 August 2002)

• Estimated medical care costs for people with arthritis are $15bn annually only in the USA. (AdvaMed, 2002)

• Fractures related to osteoporosis caused $17bn in direct expenditures in 2001 in the US. (eyeforpharma, 20 August 2002)

Long term healthcare providers and their suppliers have seen in the last years steady growth. This has been propitiated by the increasingly ageing population, the technological advances and the favouring recent regulation and policies in an effort to cut healthcare expenditures. (See General Trends section)

• The stock market performance of the publicly-traded home healthcare agencies (HHAs) significantly underperformed during the mid-1990s, but in the last two years, however, this sector has rebounded and outperformed, indicating and improvement in investor sentiment. (CMS, 2002)

• Traditionally, the home healthcare industry has been a fragmented and local/regional market. However, the introduction of tough new regulations and billing processes since the early 1990s has resulted in a lot of M&A activity and smaller non-profitable players leaving the market. (CMS, 2002)

• The bulk of the home healthcare industry is made up of thousands of relatively small, regional and local providers, most of which are not highly capitalized. (CMS)

• An approximate 52% of health agencies in the US is for-profit and a 48% non-profit. (SMG Marketing Group, 2002)

• Independently owned home healthcare agencies in the US in 2001 represented 52% of the market, while chain-owned, government-owned and church-owned HHAs represented 30%, 15% and 3% of the market respectively. (SMG Marketing Group, 2002)

• The largest publicly-traded company in the home healthcare business is Gentiva Health Services, which attained $730m of its revenue from its home health business in 2001 (approximately 2-3% of the HHA market). (CMS)

Some suppliers to long-term/home healthcare facilities and services:

• As per the table above, these companies have seen a massive growth in revenue in the last year, reinforcing the strength of this industry.

Some therapeutic pharmaceutical products providers:

• Average growth since September 2001 in the top 7 pharmaceutical manufacturers was 4.4%.

Some providers of long-term / home healthcare:

• These organizations have also seen strong growth in revenues during the last year.