NMC Health (LSE:NMC) is bringing Western standards to the Middle East with its network of hospitals and healthcare facilities. Find out why it has an enormous competitive advantage from analyst Kristine Harjes and portfolio manager Charly Travers in this clip from The Motley Fool's Industry Focus: Healthcare.
A full transcript follows the video.
This podcast was recorded on Oct. 19, 2016.
Charly Travers: NMC Health is a hospital and physician clinic operator in the United Arab Emirates. When we evaluate our companies as a team, we talk about companies across four pillars. Those would be management quality, their competitive advantage, the business economics, and then, is the business going to get stronger over the next 10 years. I had the opportunity to spend a week out in Dubai looking at companies in the Middle East, and NMC Health was one of the businesses I saw. I got to tour two of their facilities, and one that was under construction. I found what they were doing with the hospitals to be pretty remarkable.
The backdrop in the UAE: It's a wealthy country with wealthy country healthcare problems. That means high incidence of cardiovascular disease, a lot of obesity, diabetes, and things of that nature. Alongside that, with the rising incidence, the kinds of diseases you've seen the United States, was a country that had massively underinvested in its infrastructure, to the point where they were sending people overseas, mostly to Europe, to get treatment because they just didn't have the facilities at home.
So, they had a lot of government-owned hospitals, and what they did was encourage private sector -- one of those companies was NMC Health -- to come in and start building hospitals. NMC started there in the 1970s, but has really accelerated their modern buildings to treat the population there. We saw their maternity hospital. The maternity wards there -- it's a growing population -- are bursting at the seams, so they built a modern, state-of-the-art facility with 100 beds. It's a gorgeous building. Anyone here would be happy to be in there. And then, they built another specialty hospital that can do oncology, general surgery -- they have a NICU for little kids. So, they're able to meet the needs of a population that dramatically needs better healthcare, and to do it with Western, high-class standards.
So then, what that has also enabled is medical tourism to come to a place that just has all these Western doctors, premier facilities. People can come in there, get treated, take a nice vacation in Dubai, and then be on their way. So, as far as a competitive advantage, there's only a couple hospitals that do this. It cost hundreds of millions of dollars to build one. You need the blessing of the government. So, once they're in, and up and running, it's a really nice business. Over there, the payment system makes it so hospitals are much more profitable in that kind of market than they are here in the U.S.
Kristine Harjes: Why do you say that?
Travers: It's a combination of their government healthcare plan, and the people who are there as employees -- it's a highly expat society where people have their own private insurance, so the hospitals are able to charge a price where they get a better margin on the services they're providing.