Hospital information systems (HIS) are the digital centrepiece of every hospital. Various applications for processing patient data and billing services are centralised there. The products can therefore also be described as the operating system of hospitals.

For a long time, the market was considered to be relatively static. Many hospitals been reluctant to replace their HIS in the past due to the high technical and financial costs involved. And the list of providers of such systems in Germany is fairly limited, and has become even shorter with the withdrawal of SAP in 2022: Of the domestic competitors, Compugroup, Meierhofer, Nexus and Telekom still mainly dominate the market. Dedalus, an Italian provider, is also in the race.

„It is a very oligopolistic market that is primarily characterised by players who developed their systems in the 1980s,“ says Hendrik Fröhling from Avelios Medical. The Munich-based start-up was founded in 2020 with the aim of shaking up this very market with a new HIS. „The development of such comprehensive IT systems for hospitals is very complex,“ says Fröhling. In this respect, only a few have dared to take on this challenge.

According to experts, one reason why HIS development is so complex and the number of providers so low is that the German healthcare system itself is so complex. „The topic of patient billing alone is a science in itself, as there are different billing standards for outpatient, inpatient, private and statutory care,“ says Florian Benthin, Partner at EY Parthenon in the Healthcare division. The German healthcare system is „very specialised“ and the barrier to market entry is quite high for this reason alone. Added to this is the difficult cash situation of many clinics, which makes the German market unattractive for potential new entrants.

The problem is likely to become even more acute in the future. In a recent survey by the German Hospital Federation, almost 80% of all participating hospitals stated that they expect to make a loss in 2024. According to the association, German hospitals are currently lacking around 1.6 billion euros for digitalisation. „That alone is an additional barrier for international providers,“ says Benthin. In other countries, such as Denmark, the Netherlands or Switzerland, manufacturers can sell their respective HIS licences at a significantly higher price.

In the past, competitive pressure in this country was therefore limited, as was the pressure to innovate for local providers, says Vincent von Uechtritz, Director at Strategy&. „There have certainly been some omissions here,“ says the management consultant. Beyond the core functions of hospital information systems – the recording and collection of patient data and the billing of services – only a few new functionalities such as patient portals or telemedical tools have been added to the traditional HIS in recent years. Ultimately, this was also due to the order situation, which was good despite hospitals' tight budgets, says von Uechtritz. „The big providers were very busy.“

However, the start-up Avelios now wants to break new ground. „Our software is structured along the treatment process – from appointment booking to billing,“ explains Fröhling. „This sets us apart from many of the existing players, who have often developed their systems with a focus on billing and administration processes.“ The software creates „the basis for intelligent patient care as well as data-driven research and automation, as all data is consistently recorded in a structured manner throughout the treatment process.“

The company has already won a number of customers with this approach, including the Munich hospital chain Sana and the Ludwig Maximilian University Hospital in Munich. Overall, Avelios is used by a „high double-digit number of hospitals“, says Fröhling. It was a challenge, especially at the beginning, to gain trust in such a sensitive area as the hospital information system. „On the other hand, many customers are happy that we are bringing a breath of fresh air into the industry as a new provider.“

In addition to customers, Avelios has also recently won over US start-up investor Sequoia. The Americans joined the Munich-based company at the beginning of February in a 30 million euro financing round. It was one of several recent private equity deals in the German HIS market. The Luxembourg-based financial investor CVC acquired a stake in Compugroup from Koblenz in December. In January, the US private equity firm TA Associates also took over the HIS provider Nexus from Donaueschingen. Compugroup and Nexus are both to be delisted from the stock exchange as part of the deals. For Strategy& expert von Uechtritz, the investor interest in the major HIS manufacturers comes as no surprise. „Of course, investors were already active on the market before, but the signs are now pointing to growth as a result of the SAP cancellation,“ he says. The HIS of the Dax group was primarily used by large clinics with an extensive service portfolio. In total, around 300 customers had to look for new solutions. „No provider can serve all of these customers at the same time,“ says von Uechtritz. „Many will now get a slice of the cake.“

The big piece of the pie these days is Berlin's Charité hospital, which has to find a new HIS following the withdrawal of SAP, and recently launched a tender with a budget of around 200 million euros. Never before has a German hospital spent so much money on an HIS. The award of the contract has already led to a legal dispute in which Dedalus accused Charité of having cut the tender in favour of its US rival Epic. Charité rejected this.

However, the market has also been shaken up in recent years for political reasons. In 2020, the then Bundestag passed the Hospital Future Act (KHZG), which is intended to drive digitalisation in German hospitals. The federal and state governments provided 4.3 billion euros in funding for this purpose. The law has „prompted many hospitals to modernise and expand their IT systems and to standardise the previous zoo of different programmes“, says EY expert Benthin. The law also provides for sanction payments for hospitals that do not implement their KHZG-funded digitalisation projects on time. Strategy& expects HIS prices to rise for this reason alone.

Germany is also not the only country that is politically promoting the digitalisation of hospitals. In France, for example, the „Ma Santé 2022“ programme and in Switzerland the „DigiSanté“ programme are releasing considerable investment funds into the digitalisation of the healthcare sector, according to Compugroup's latest annual report. The company anticipates organic sales growth in the low to mid single-digit percentage range and slight growth in adjusted EBITDA in 2025. Nexus is also forecasting a slight increase in turnover and a slight increase in pre-tax earnings for 2025.

Both companies ramped up their investments in product development last year - a step that traditional providers can no longer avoid these days, as expert von Uechtritz says. „In their current form, many software solutions cannot survive forever. That's why investment must also be channelled into future technologies.“

It is important, for example, that the major providers create the technical requirements to map the ever-increasing number of networked devices in hospitals in their systems. Due to the increased use of computationally intensive AI technologies, for example in diagnostics, many hospitals are also increasingly switching from in-house servers to the cloud. This also requires HIS providers to modernise their systems. Last but not least, manufacturers also need to invest more in cyber protection.