Private Investment in Provider FacilitiesJune 6, 2012

Presented by

Stuart Anolik, Esq.International Tax Practice Leader, CBIZ MHM, LLC

Circular 230 Notice

Any tax advice contained in this program is not intended to be used and cannot be used for the purposes of avoiding any penalties that may be imposed by the Internal Revenue Code.

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Demand for Medical Services

• Primary driver of demand for medical services is from the “baby boomer” generation. Baby boomers are beginning to turn 65.

• According to the Institute of Medicine, by 2030, America will need 3.5 million more health care workers for older Americans, including 868,000 more RNs and 231,000 more licensed practical and vocational nurses.

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Demand for Medical Services• In 2009, there were 288,471 hip replacements performed in

the U.S., and almost half of them were for patients under the age of 65. Knee replacements in the same year totaled 621,029, with surgeries among the 45-64 year old group nearly tripling since 1997.

• Many patients could opt for less invasive treatments – such as using a cane, wearing a brace – but prefer the surgical solution.

• Some knee and hip problems are related to obesity, but some arise from increase in active lifestyles and ironically from exercise that is meant to stave off weight gain.

• Roughly 1 in 8 baby boomers will be diagnosed with Alzheimer’s.

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Facts About Medical Tourism

• In 2006, more than 500,000 Americans traveled abroad to receive medical and dental work.

• Experts predict that this year medical tourism will grow to be a $100 billion business with more than 780,000,000 patients traveling abroad to receive care from foreign doctors, dentists, and hospitals.

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Puerto Rico

• Puerto Rico actively encourages development of medical tourism facilities.

• On December 15, 2010, the Puerto Rico legislature approved the Medical Tourism Act. Eligible medical tourism businesses can qualify under each incentivized activity for benefits.

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Comparison – India vs. US Hospital Care

Narayana Hrudayalaya Hospital – Bangalore,

India

Leading U.S. Hospitals (average)

Number of Hospital Beds 1,000 160

Heart Operations in 2010 6,272 4,128

Operation Costs (max) $5,000 $100,000

Mortality Rate After Common Procedures

1.4% 1.9%

Earnings After Tax Profit 8% 6.9%

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Medical Tourism in Jordan• Jordan is a destination for international travel for medical

services. It is also an attraction for spa and wellness services, due to its proximity to the Dead Sea.

• Some reasons for its attractiveness are:– No waiting periods– English speaking staff and surgeons– Potential cost savings on procedures, even for comparable

services offered in India, Singapore and Thailand.   – Jordan has also implemented its own national accreditation

association – Health Care Accreditation Council (HCAC)

• Some reduction in medical tourism to Jordan in 2011, due to the “Arab Spring.”

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Private Equity Investment in Medical Facilities in China

• From 2010 to 2011, the Chinese Ministry of Health reported that the number of privately owned hospitals in China increased by 1,144. The increase is likely due to private investment in these facilities.

• Privately owned medical institutions make up around one third of all medical providers in China, yet these privately owned institutions provide only ten percent of all medical services, implying a potential growth area for private hospitals and clinics.

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Private Equity Investment in Medical Facilities in China

• In prior years, most private investment in medical companies in China has been in the pharmaceutical or medical device area.

• In February 2012, Chinese Premier Wen Jiabao stated that China will provide greater access to private investors for investment in construction of new medical institutions.

• Private equity managers advise that while the Chinese government is encouraging private investment in hospitals, the policies governing these investments must be established by local governments. Until these policies are developed, investors should be cautious.

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Private Equity Investment in Medical Facilities in China

• Other obstacles to investment:– Yu Chunjian, a neurosurgeon who founded a private hospital in

China 8 years ago, said the tax burden is very heavy. – Medical care involves high risk and investment in technology,

which is an additional burden for private hospitals.– China has a limited supply of professional doctors. Under the

current system, doctors in the public hospitals who move to private hospitals are not allowed to qualify for additional professional titles. Doctors are therefore faced with choosing the more lucrative salary offered by private hospitals or continued eligibility for further professional certifications.

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Cayman Islands – Narayana Cayman University Medical Center

• Project will be developed over 15 years, beginning in August 2012.

• Will include a 150-bed hospital and medical school.• Founder of the project has lobbied for legislation to

benefit operation of the facility, such as allowance for non-Cayman trained doctors to practice medicine in the Cayman Islands; exemption from future taxes; and a cap on damage awards for medical malpractice.

• Founder believes that U.S. patients will travel to the Caymans for medical procedures once U.S. physicians begin working at the facility.

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Stem Cell Therapy• Significant restriction on stem cell research and therapy in the

U.S. • The American Medical Association estimates that in 2008

several thousand U.S. persons sought stem cell therapy outside the U.S.

• Foreign clinics may be marketing therapies that have not undergone clinical trials., which could put patients at risk and jeopardize research in this area For example, China recently discontinued all unapproved stem cell therapies and trials and stopped accepting new applications for stem cell programs. Beijing had been offering therapies with little or no proven benefit.

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Medical Tourism Destinations for U.S. Persons• Mexico• Bahamas• Jamaica• Costa Rica• Nicaragua• Panama• Colombia • Despite favorable prices for medical services, nice

weather, and proximity to the U.S., these countries are losing market share to countries like Jordan, Turkey, and Croatia.

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Issues for the Future of Medical Tourism

• Transparency• Certification• Ethics• Insurance

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QUESTIONS?

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CBIZ MHM, LLC Contact Information

Stuart AnolikInternational Tax Practice Leader

301.951.3636   sanolik@cbiz.com

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Thank You

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