An expanding middle class, changing lifestyles, increasing longevity and an overhaul of the social security system are all contributing to rising demand for healthcare in Indonesia. The government has vowed to extend health insurance coverage to the entire population in 2014, but state-owned enterprises will struggle to meet the additional need this creates for hospitals, equipment, services and pharmaceuticals. The private sector, therefore, is likely to be the main beneficiary of double-digit growth in Indonesia’s healthcare market.
Nationwide spending on healthcare will grow at an average annual rate of 14.9% between 2012 and 2018, market research firm Frost & Sullivan predicted in March 2013. This would see the market more than double over that period to $60.6 billion USD. Aside from population growth and ageing, urbanization is a major driver for growth in the healthcare sector, because urban lifestyles are associated with a poor diet, a lack of exercise and stressful office work hence increasing the prevalence of a range of diseases such as diabetes, cardiovascular illnesses and gastric conditions. The other major factor behind the sector’s positive outlook is the expansion of health insurance, both private and public.
In the past, private health insurance was viewed as a luxury enjoyed by the top tier income earners (See An Overview of Indonesia’s Health Insurance Sector), yet greater awareness of health and the rise of non-communicable diseases in cities is seeing a change in this attitude. At the same time, the promised expansion of public coverage empowers tens of millions of low-income Indonesians to receive health benefits they could otherwise not afford, thus massively expanding the health market customer base. Law No. 40/2004 on National Social Security (SJSN) and Law No. 24/2011 on Social Security Providers (BPJS) mandate that universal healthcare coverage be phased in from 2014 onwards. The laws effectively extend coverage to all those Indonesians who are not currently insured by private insurers or the patchwork of existing public programmes, which is more than a third of the total population (IMF).
Capacity constraints, however, could cause delays in the implementation of these plans. With many public hospitals and health centres already running at high occupancy and struggling to find enough qualified doctors, nurses and other staff, it is hard to see how they would cope with the extra burden. The universal health insurance policy aims to afford every Indonesian comprehensive albeit basic care so the government will need to invest heavily in public hospitals to make good on its promises to the newly insured.
Private healthcare providers may have limited interest in serving these patients, since their state insurance scheme will only go so far in allowing for costly procedures. The government reportedly plans to spend only 15,500 RP per month on insurance for low-income beneficiaries, a figure that experts have called too low to cover treatments like cancer therapy or heart surgery. That said, many patients will demand faster treatment, more modern equipment, or fancier hospital rooms than public insurance will provide. The run on basic services will lead to crowdedness and may drive some customers upmarket in search of more personal and dedicated care. National health insurance should therefore pose no threat to higher-margin premium healthcare, financed out-of-pocket or through private insurance; quite the contrary, in fact.
The combined force of political and economic factors driving demand in the healthcare sector follows decades of underinvestment, which leaves lots of room for growth. Per-capita spending on healthcare in Indonesia lags behind other emerging economies, including the Philippines. Total expenditure in Indonesia according to the World Health Organization (WHO) amounted to 2.7% of GDP in 2011, which is among the lowest in the world and compares to 3.9% in India, 4.1% in the Philippines and more than 8% in South Africa and Brazil. Due to the lack of investment in the past, existing facilities now need to be upgraded or replaced, while new ones need to be added on a grand scale. The need for additional hospitals and health centres is particularly pressing outside of Java and the main urban centres, since many of the newly insured citizens reside in the less industrial regions.
While the universal insurance policy creates obvious demand for affordable inpatient treatment, attractive business opportunities also wait to be unlocked in the upper end of the market. An estimated 1.2 million Indonesians fly to Singapore, Malaysia and elsewhere every year for high-quality healthcare (Ministry of Tourism & Creative Economy). With an eye on this high-margin market, Siloam International Hospitals, the country’s biggest private hospital operator, in September 2013 confirmed plans to build dozens of new hospitals within five years.
The anticipated hospital building boom naturally opens up opportunities for suppliers of equipment from hospital beds to patient monitoring systems. To date, up to 97% of Indonesia’s medical equipment demand is being met by imports equating to $493.3 million USD in 2011 (Espicom). While local Indonesian manufacturers have secured a position within basic medical goods such as hospital furniture and bandages, foreign suppliers are relied upon for more sophisticated medical and surgical instruments such as medical lasers and diagnostic equipment. The rise of non-communicable diseases is also spurring demand for more advanced treatments such as haemodialysis equipment and cancer therapies including High Intensity Focused Ultrasound and Radio Immunotherapy.
Medical equipment suppliers within these areas are advised to cooperate with local Indonesian distributors to take advantage of their nationwide marketing networks as well as overcoming import licensing obstacles. In December 2012, the Ministry of Health introduced e-Regalkes or the Medical Device Registration and Household Health Supplies platform to streamline the process of licensing medical devices in Indonesia however challenges still remain. Crucial to success in the Indonesian medical equipment sector will be the ability to offer affordability as state health providers seek to control costs in the face of booming demand from the introduction of the universal social security system.
The government must seek to keep costs of universal healthcare within budget limits and it can be expected to act accordingly in choosing medication covered by the national programme. This should provide highly attractive growth opportunities for producers of generic prescription drugs (See Opportunities in the Pharmaceutical Sector). While consumers may prefer branded drugs to generic ones, for the government price and quantity will be the order of the day when it comes to supplying millions of new market entrants. The urge to source large quantities of low-cost drugs puts pressure on the government to erode patent protection in some cases, which is perceived as a threat by global pharmaceutical firms. However, it can be assumed that the universal healthcare policy will create additional demand for medicine in the lower-end market rather than substitution of brand-name products with generic ones as most of the new patients were previously unable to afford expensive medicines.
Quality control will be crucial for the development of Indonesia’s generic drug industry which still sources most ingredients from abroad. Demand for branded products should continue to grow strongly, particularly for over-the-counter items as many consumers view brands as a guarantor of quality. Indonesian pharmaceutical companies should be receptive to foreign equity participation and joint ventures including research as they prepare for intensified competition within the ASEAN Economic Community. Such alliances allow foreign companies to tap into established distribution networks of local firms.
The shortage in qualified professionals is one of the greatest obstacles to the growth of Indonesia’s healthcare sector. WHO data for the 2005-2012 period shows that the country only has 2 physicians per 10,000 people, compared to 6.5 in India and 12 in neighbouring Malaysia. The problem is largely of Indonesia’s own making as the law sets highly restrictive conditions for foreign doctors to practice in Indonesia. The government may eventually need to soften its policy somewhat to enable public and private healthcare providers to staff new facilities and operate sophisticated equipment. Investors, in the meantime, could turn the human resource shortage into an opportunity for professional training, possibly in liaison with local universities (See Partnership & Investment Opportunities in Education).
While many questions remain as to how the government will deliver on its healthcare promise to the Indonesian people, there can be little doubt that the market will outpace overall economic growth until well into the future.
Global Business Guide Indonesia - 2013
Contribution to GDP: 39.07% (Q3 2015)
Sector Growth: ICT 10.83%, Hospitality 4.53% (yoy, Q3 2015)
Number Employed in the Sector: 54.9 million (February 2015)
Main Areas: Retail, Transportation, Media, Telecommunications, Finance, Hospitality, Tourism.
Government Bodies: Ministry of Trade, Ministry of Tourism, Ministry of Transportation, Ministry of Manpower.