Private Health Care on the Rise

The private sector accounts for 40 percent of hospitals in Indonesia, and growth is expected to continue. (sumber: jakartaglobe))Wenyta Soebroto, a manager for corporate communications at a bank, is a perfect example of the vast potential offered by Indonesia’s rising middle class.

The 31-year old mother is a professional who aspires to provide a higher living standard for her child and her family.

She is among the millions of middle-class Indonesians who are demanding high-quality health-care services and are reluctant to wait for treatment at public facilities, where demand exceeds the resources of doctors and other health-care providers.

“As soon as you step into a private hospital, you can see that the hospital looks hygienic. I also feel that the service is better, and I trust the doctors,” she said.

Indonesia, with 247 million people, is the fourth most populous country in the world. It is expected to have another 22 million people by 2022, adding to the already highly attractive demographic dividend.

The strong growth in its population is expected to lead to a growing demand for resources and basic needs like food, clean water, energy and health care.

Moreover, Indonesia’s middle class, estimated to number more than 60 million, and expected to grow to more than 120 million in five years, offers a huge untapped market for private health-care providers in the country. Not only are they underserved, with just 1,600 hospitals, the middle class is willing to pay a premium for better-quality health care.

A growing middle class will also lead to a shift in the type of health-care services that will be needed. According to health-care experts, as more people live in urban areas there will be a sharp growth in non-communicable ailments such as cardiovascular diseases, cancer and age-related illnesses including arthritis and diabetes.

For such demand to be met, greater investment in health-care infrastructure will be needed. The country will also need to be more open to foreign investment into the health-care market.

Driving improved quality

A rising middle-class population increases the affordability of health care and drives consumer preferences for quality and high-standard health-care services. Indonesia’s young and urbanized middle class commands significant spending power.

Total health care expenditure in Indonesia has increased at a compound average growth rate of 14.6 percent, from $13.6 billion in 2007 to $26.9 billion in 2012.

Public and private health care expenditure stood at $10.8 billion and $16.5 billion respectively in 2012.

Consultancy firm Frost & Sullivan forecasts total health-care expenditure to reach $59.1 billion in 2018 at a CAGR of 14 percent from 2012, with the public and private spending contributing $24 billion and $35.1 billion respectively.

Private health-care operators can also help the government overcome the shortage of public hospitals and centers by providing more facilities.

Government data show that there was one community health center (Puskesmas) for every 26,200 people in 2011, compared to one Puskesmas for every 28,700 people in 2007, according to the Health Ministry. It estimated that there will be 10,500 Puskesmas by 2015, which translates to one for every 24,000 people.

Currently, government hospitals account for 60 percent of all hospitals in the country but no new public hospitals are being built. But the private sector, which accounts for the remaining 40 percent, is expanding its reach and capacity.

“The prospects of this sector is good. Public hospitals carry some public service obligations, and limit what services they can offer,” said Mohammad Alfatih, an analyst at Samuel Sekuritas.

“The private hospital operator has more flexibility in making maneuvers to provide better health services. But in this business, what matters is how much they are willing to spend. Investment will affect everything, from the management side, the service availability as well as the outreach.”

Lucrative business

In the past few years, companies including the Sinar Mas Group, Mayapada Group, Ciputra Group, Kalbe Farma Group, Omni Group and Lippo Group have started to pay attention to the hospital business to meet the demands of a growing middle class.

While most of the players remain small, both in terms of number of hospitals and geographical reach, Siloam International Hospitals, part of listed property company Lippo Karawaci, is expanding fast across the sprawling archipelago.

Siloam currently operates 14 hospitals in all major cities and is seeking to add about six new hospitals a year.

Both Siloam and the Jakarta Globe are a part of the Lippo Group.

Frost & Sullivan expects the number of private hospitals to continue to grow faster than the number of public hospitals over the next five years as private hospitals expand beyond the Greater Jakarta region into other cities.

But remote regions and small islands continue to have poor access to services, and they are unlikely to prove profitable any time soon for private operators and so will be dependant on the public system.

Indonesia’s middle income households — defined as all households with annual earnings between $5,000 and $10,000 — have doubled to 28.5 percent in 2012 from 14.8 percent of the total households in 2008, according to government data.

Middle-income households are expected to increase further in the coming years.

“When purchasing power improves … lifestyle improves. This would lead to a better awareness for a better health-care service,” said Crisnanda, an analyst at BNI Securities.

“The health-care business … serves people from when they are born until they die.”

Indonesia’s gross domestic product per capita has grown in recent years. In 2004, its GDP per capita was $1,177, while five years later it had increased to $2,299. It rose to $3,592 last year. President Susilo Bambang Yudhoyono is aiming for GDP per capita to reach $5,000 next year.

Changing rules

Regulatory changes are also expected to further boost opportunities for the private sector to profit. From the start of next year, the government will roll out the Social Security Organizing Body (BPJS), which will provide improved health-care insurance and services.

The private sector can benefit as more people get health insurance.

UN data show that the average age in Indonesia will rise to 39 years in 2040 from 28 in 2010, shifting the profile of diseases likely to be common across the population.

“For me, time is money,” said Faisal Yusuf, an engineer who works for an international development agency.

“My impression of public hospitals is too many people queuing, it is so tiring. I prefer a private hospital,” said Faisal, 35.

source: jakarta globe