Dr. Murat Dayanikli, chief executive of Birlesik Saglik Kurumlari (United Health Systems) has $104m to spend on buying stakes in regional private Turkish hospitals and reckons he can make 15-20% EBITA. 

Dr. Dayanikli started his working life in the USA between 1992 and 1996, as Strategic Planning and Performance Evaluation Director at California Pacific Health Services and as a consultant for Mercer Consultancy Company.

In 1996, he returned to Turkey, where he ran Anadolu Sağlık Merkezi (Anatolian Health Center).

He founded BSK three years ago, and the company has been operating for some 18 months. It is backed, and majority-owned, by Turkish private equity group Esas Holding.

HE: Would you like to start by describing your model?

MD: We buy stakes in hospitals in regional Anatolian cities, away from Ankara and Istanbul. Some of the stakes are minorities, but we always have board control.

The average size is 7,500 square metres, and after one year we have 7.

I want 20 by 2011. I’ve spent the past three years putting together a very strong management team so we can run these hospitals professionally.

HE: Why not go to the big cities?

MD: There is a lot of competition and surplus beds in Istanbul, Ankara and Izmir. We are often buying in towns and cities where there is no other private hospital.

Also, costs are much lower. Physician costs are much the same, but nursing and ancillary is half what I would pay in Istanbul.

HE: In Turkey, hospitals are graded A, B or C, with C hospitals being fairly basic. I’m guessing that most of your hospitals are C?

MD: Firstly, because we are the only private hospital available, everyone comes to us – rich or poor, so the A, B, C categorisation doesn’t really apply to us or our customers.

Secondly, yes, broadly speaking, our hospitals would be C or B rated. This means they have a relatively low cost base.

HE: I know that the government last July stipulated that private hospitals could charge no more than an extra 30% to individuals whose treatment was being paid by social security, and that this has caused huge problems for A group hospitals with their high cost base. Can you live with the 30% ceiling?

MD: Absolutely, and we can make EBITA margins 15-20% at that price in established hospitals.

My ambition is to be the lowest cost hospital operator in Turkey. We can thrive at that level, whilst the big A and B groups, particularly in the big cities, can not.

That is why our hospital are below 10,000 square meters – above that, fixed costs really rise.

HE: And can you make savings when you take over a hospital?

MD: Yes, typically 10-15%, particularly in purchasing, but also by cutting staff numbers and introducing proper IT.

HE: So when will you go to the big cities?

MD: In two years time, when I can offer any partner a big flow of patients, then we will establish reference centres for tertiary care. And, as we will be able to offer patient flow, we will pay a lot less for the businesses.

HE: The general situation in Turkey is not good for the big A and B hospital groups right now, is it?

MD: No, they find it impossible to live with the 30% ceiling on costs.

A-group hospitals refused to sign the government contract, and saw their business fall 40-50%. Companies which have just finished building really large hospitals are particularly badly hit.

We buy established businesses, where the physicians have established relationships and patient flow.

After the regional elections, it is clear that the system will change. A new categorisation system will be introduced and those categorised as A group hospitals will be able to charge up to 70pc on top of the social security. But that will still not be enough for the most expensive hospital chains.

HE: Do you worry about the danger of depression? Won’t the government cut spending on the private healthcare sector?

MD: No, they only introduced freedom of choice before the last general election, and it was a big vote winner. They can’t take that away now.

Anyhow, Turkey has only just reached 8% GDP expenditure on healthcare. They can’t cut it by much. And also, as the lowest cost operator, we have nothing to fear.