2016 has seen a surprising level of deal activity in the (private) Austrian hospital sector: in Vienna, PremiQaMed, a 100 % subsidiary of UNIQA insurance group, acquired a 75 % stake in the renowned private hospital "Goldenes Kreuz", and the hospitals Hartmannspital and St. Elisabeth announced a merger to form the new "Franziskus" hospital. In Linz (Upper Austria), the "Elisabethinen" and the hospital operated by the Sisters of Charity agreed to combine to form a regional player with approx. 1,200 beds.

Most recently, public (and political) discussion on a potential spin-off (and privatization?) of the Vienna Association of Hospitals (Wiener Krankenanstaltenverbund) has picked up.

The drivers behind this consolidation are expected benefits from synergies (eg by eliminating multiple administration layers, shared procurement, etc.), increased specialisation (resulting in higher case numbers and thus better quality of services, efficiency gains and higher bed occupancy) and, in individual instances and where possible under regulatory rules, a focus on commercially attractive practice areas.

Key Investment Considerations

Simply put, the core pillars of medical services in Austria are:

  • (individual) doctors' private practices (Ordinationen) and group practices (Gruppenpraxen); and
  • hospitals (Krankenanstalten) of various types, including sanatoria and outpatient clinics (Ambulatorien).
The regulatory framework is complex and – especially for foreign investors – not immediately obvious.

Buy ...?

Ownership of private practices and group practices is only open to medical doctors. While group practices may be set up in the legal form of a limited liability company (GmbH), only medical doctors admitted to practice independently may be shareholders; others may neither take an equity stake nor participate in the revenues or profits of a group practice. Any transfer or assignment of shareholder rights is prohibited. Whilst it may still be possible to gain certain commercial exposure to a doctor's or group practice as a third party, this usually requires careful regulatory and tax structuring.

Hospital regulations are split between a federal (framework) Hospitals and Sanatorium Act (Krankenanstalten- und Kuranstaltengesetz, KaKuG) and nine regional hospital laws, one for each province (Bundesland).

Importantly, ownership of (private) hospitals is open to various types of legal entities and, thus, from an investor's perspective it is very well possible to take an equity stake – be that in the form of a minority or majority stake, a 100 % acquisition, or by setting up a joint venture with an existing owner, respectively operator.

There is no general investment control regime or "fit and proper" test for hospital ownership, but the KaKuG and the regional hospital laws contain change of control regulations which result in a requirement to obtain approval by the regional government (Landesregierung) in case of an ownership change. Non-EU investors should note potential approval requirements under Sec 25a Austrian Foreign Trade Act (Außenwirtschaftsgesetz).

... or Build?

Both building and operating a new hospital requires permission by the competent regional government (Landesregierung). One condition for obtaining authorisation to set up a new hospital is a positive demand test (Bedarfsprüfung), a complex and highly political process.

The test is meant to determine whether – having regard to existing care offered by health institutions with contracts with sickness funds, and, in the case of an outpatient clinic, the care offered by resident doctors contracted to sickness funds, establishments owned by or contracted to sickness funds, the regulatory framework and the envisaged scope of services – there is sufficient demand to justify a new hospital.

The ECJ has held that this test violates EU law as far back as 2009 (case C‑169/07, Hartlauer). However, it is still applied.

From an investor's perspective, this is clearly a far more challenging route which is less amenable to objective checks such as business planning or budgeting that a commercial enterprise would typically require than an acquisition. While not impossible, it may require more stamina.

The Trend to Private Sector Medicine will continue

Lack of funding of public sector hospitals, changes to the rules on hospital doctors' working hours and increased waiting times, in particular for complex or expensive procedures, have triggered a strong trend towards private sector health care in Austria. This trend will continue and will bring about further investment opportunities and potential for cooperation among key players, both strategic and financial investors.

In addition, Austria still has the advantage of its geographical location bordering a region in which medical services may not yet have reached the exact same standards as in Western Europe or the US. Wealthy patients from this region may well prefer to be treated in a private hospital in Vienna. Interested parties should thus watch this space – there is more to come.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.