Overview

The medical diagnostics industry

Comparison of the U.S. with the Brazilian medical diagnostics markets

Public Sector Trends

Private Sector trends

The medical diagnostics industry

The medical diagnostics market covers both clinical analysis and diagnostic imaging.

Until the early 1990s, clinical analysis was carried out almost exclusively on a non-standardized manner by the physicians themselves at their offices or at small- and medium-sized laboratory facilities. The market was highly fragmented and dependent on local brand awareness.

From the mid 1990s onwards, however, the medical diagnostics market has undergone, and continues to undergo, significant changes as a result of the acceleration of technological developments in clinical analysis and the implementation of new techniques and devices capable of processing diagnostic tests with higher precision and efficiency and at greater volumes. The use of robotic and computer resources have become key competitive strengths. The level of investment required to implement such technologies increased the importance of achieving economies of scale, consequently leading to a movement of market integration.

Trends in the global medical diagnostics industry are also present in the Brazilian market. They include,among others:


     the development of diagnostic imaging as an important tool for medical diagnosis;
   
     the development of new technologies for the performance of clinical analysis and the use of new increasingly        automated machines and robots capable of processing exams with greater speed and precision;

     consolidation in the market, primarily through strategic acquisitions in new regions, followed by organic growth;

     offering of support services (laboratory-to-laboratory services) to small- and medium-sized laboratories for         clinical analysis in general, as well as to larger laboratories for rarer tests;

     convergence between clinical analysis and diagnostic imaging so as to make both types of services available in        the same service center, for the patients’ convenience;

     increasing reliance and trust by doctors on diagnostic tests and exams and a corresponding increase in demand        for those tests, increasing the revenues generated by them;

     aging of the population and increase in life expectancies;
    
     greater public knowledge of healthcare in general and medical diagnostics because of the media or Internet;

     creation of new exams directed at the early detection of diseases, meaning, the application of a prophylactic        approach to medical diagnostics;

     constant development of new medications and the need for clinical trials related to their use;

     certification of quality; and

     rationalization of administration.

Comparison of the U.S. with the Brazilian medical diagnostics markets

Public Sector Trends

The table below sets forth the total and per capital expenditures on public health services by the federal,state and municipal governments in Brazil for the years indicated.

Source: Ministério da Saúde/ Secretaria de Gestão Estratégica e Participativa
(Departamento de Monitoramento e Avaliação da Gestão do SUS), 2006.

In the last ten years, in response to the growing and unmet demand of the population for health services, the Brazilian government has had to (1) allocate additional funds to the SUS network, (2) expand the SUS network through additional investments and (3) begin contracting private institutions to provide services the SUS network is not able to provide.

In its attempt to reduce the costs of providing health services and increase efficiency, the government has increased the number and types of services it outsources to private companies like ours. We believe that certain trends in the public sector will positively influence our business.

Private sector trends

According to ANS, the number of Brazilians covered by private healthcare plans and self-managed plans, including dental plans, has steadily increased in the last few years, from approximately 30.7 million in 2001 to 39.9 million in march of 2008, covering approximately 25% of the total population according to Lafis—Consultoria, Análises Sectoriais e de Empresas, a Brazilian research consulting firm.

Source: ANS, Caderno de Informações de Saúde Suplementar, March 2008.

Private health plans generally include three distinct categories of payers:

      Health insurance companies. Health insurance companies pay the medical expenses of their insured clients         when they use the services of professionals in the provider’s network, or reimburse them in whole or in part for         medical expenses incurred with a healthcare provider selected by the insured outside of the insurer’s network.         Policyholders generally have the right to choose their own service provider of healthcare and medical support,         although the amount of reimbursement varies according to the type of plan purchased.

     Health management organizations. These are companies engaged in the healthcare business operating        through their own or a third-party’s network, including healthcare and medical support service providers. Either        the individual participant or the contracting employer pays the monthly premiums to the company that operates        the group. Within certain limitations, participants may have the right to use a provider of their own choice. Health        management organizations are comparable to HMOs in the United States.

     Physician-managed medical cooperatives. These are cooperatives owned by groups of physicians who        manage private healthcare plans in a manner similar to the health management organizations.

     Self-insuring Company plans: Some large corporations have developed self-managed plans,the costs of        healthcare coverage for their employees. These employees may be required to contribute a part of the costs of        these services. In this system, independent providers render services to the employees of these companies, who        are initially responsible for paying the service providers.

Budgetary restrictions at all levels of the Brazilian public sector and the public system’s inefficiency and lack of investment in personnel, physicians, equipment and technology have limited the Brazilian population’s access to government funded healthcare. In certain cases, access to certain medical procedures is not available or requires a long waiting period. As a result, contracting a private healthcare plan is among the top five main desires of Brazilian families.

Source: ANS, Caderno de Informações de Saúde Suplementar, March 2008.