Regulatory And Staffing Challenges For Private Hospitals In Southeast Asia - Private Healthcare World Asia 2011

SINGAPORE - Investor interest in Asia's private hospital infrastructure remains strong but regulatory limitation and lack of professional staff stymies its huge potential, industry experts told a Singapore conference June 15.

Key issues are the shortage of management and healthcare professionals to develop Asia's private healthcare industry, which "is seeking multi-billion dollars of investments to cope with the ever increasing demand in the coming years," said Anoop Singh, chief operating officer for Melbourne, Australia-based Healthscope.

"There is no shortage of investment or funding for the sector, but investors tend to prefer well-performing and profitable groups which had committed to the region's healthcare sector," he said at the inaugural Private Healthcare World Asia 2011 conference.

Singh believed it would be challenging for a new start-up or a Greenfield hospital development to win either national or international financial commitment.

The big challenge for a fresh start-up would be recruiting professional teams to manage a profitable business when medical costs remain a major concern for any government, both politically and economically.

Healthcare investors, meanwhile, are cautious about net profits, even though they are providing a public service with a high standard, he noted.

India Leads Private Sector In Asia

India leads the private sector healthcare sector development in Asia, but foreign direct investment was still slower than expected, largely due to "a home ground advantage" for Indian healthcare groups, a good number of which are heavyweight investors both in the domestic market and internationally.

While the Indian market holds huge potential for investors, backed mostly by domestic investors, the FDI flow has been slow, despite government supported incentives, noted Rajen Padukone, CEO of Manipal Hospitals, which operates 16 corporate hospitals with 1,600 beds and six teaching hospitals with 4,100 beds in India.

He said foreign investors are "still feel uncomfortable" relating to investment regulations and that Indian companies have operational cost advantages.

Existing and new entrants were looking at new formats to expand and grow in India, especially through asset-light models, such as long-term leases for hospital-type properties.

Nevertheless, India has the most committed hospital investments, and its hospital market is expected to touch $55 billion next year, up from an estimated $46 billion this year. It could double to $120 billion by 2015, he said.

Comparatively, India spends 5% of its gross domestic product on healthcare, while China spends 4.7%, way down from 16.2% spent by the U.S., 9.7% by Germany and 7.4% by Japan.

China Extends Hand To Foreign Investors

China, as a bigger market than India, has also put in place new regulations to attract investment in the healthcare sector. China now allows more than 70% foreign ownership for joint ventures, which was previously restricted to below 70% no matter how much was invested.

This is a positive development, assured Michael Choy, Founder, CEO and Chairman of Asia Pacific Medical Group .

China has also promised that it will not link indigenous innovation to government procurement preferences, an issue that had caused great consternation among high-tech industries (Also see "China To De-link Indigenous Innovation And Public Procurement Policies - U.S.-China Strategic And Economic Dialogue" - Scrip, 11 May, 2011.).

But investors are cautious about the timeline for these policies to take effect.Any slowdown in stamping out the final details could hamper the acceleration of international funding for the Chinese healthcare sector.

"Opportunities to invest in Chinese healthcare are not necessarily going to be easy," Choy cautioned. There are limitations in venturing into the giant market, but one option would be to progress via baby steps through joint ventures with local partners, according to Ng Chin Siau, founder and CEO of Singapore-based Q & M Dental Group . Ng expressed confidence in building Q & M Dental's business through partnerships especially since the local partner will know the Chinese business culture.

ASEAN Opportunities Strong

Similarly, more and more healthcare business opportunities will be available in the Association of Southeast Asian Nations region, especially with the huge deficit in infrastructure, expertise and manpower in Indonesia, the Philippines and Vietnam.

These cash-strapped governments have started encouraging private investment in the sector, given the continuing shortfall in coping with social medical services.

The Philippines remain short of hospital beds, averaging seven beds per 10,000 people. Indonesia also remains short of hospital beds, doctors and nurses. Vietnam's private healthcare operators were only able to serve the expatriate community as well as "those who can afford it," mostly affluent citizens. Yet many Vietnamese prefer to travel for treatment to private healthcare centers in Thailand, Malaysia and Singapore.

"It is easier to bring patients to the hospital than set up a hospital with a total medical and professional management team in some of the smaller regional markets," Mahkota Medical Centre Sdn Bhd CEO Timothy Chang told PharmAsia News.

Mahkota recently set up a service center in Cambodia to guide patients seeking private healthcare treatment overseas. Mahkota operates out of Malacca city in Central Malaysia.

Chang has also cautioned investors not to expect big dividends from private healthcare businesses. Governments keep a close watch on the businesses and profits, said Chang, who earlier this year explained to Malaysian health authorities the high capex investment in hospital facilities and lower profit margins.

The Philippines, a known exporter of doctors and nurses, is also seeing a major change in private healthcare development through public and private partnerships, he said.

The University Physicians Medical Centre (UPMC) is set to expand its services by adding eight to 10 hospitals over the next five years, said president and CEO Edwin Mercardo.

UPMC will add two hospitals, each with 150 beds, every year, he told PharmAsia News. It is currently operating one 150-bed hospital in Batangas and an ambulatory service center serving some 3,000 patients a day.

A major regional regulatory change is also taking place in the ASEAN region. By 2014, general practitioners will be allowed to set up "General Practice Clinics" across borders in the region.

"This is going to be a big challenge for single GP operators but benefit the people of the region," said James Jeremiah, founder and advisor of Permai Polyclinics Group, which is expanding services from Kota Kinabalu in the east Malaysian state of Sabah on Borneo to the Malaysian Peninsula as well as outside the region.

The general practitioner market will expand following the implementation of the ASEAN Free Trade Agreement, which opens the 550-million person market among ASEAN member countries - Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand and the Philippines, Jeremiah said.

There will, however, remain a discrepancy on the affordability of private healthcare services, including general practitioner consultancies. Myanmar and Vietnam could be sources for doctors and for the region, though language differences raise challenges, said delegates and speakers.

- Gurdip Singh ([email protected])