Indonesia’s healthcare industry continues to grow rapidly and remains a lucrative investment opportunity for local and global investors. Almost all aspects of the healthcare industry, including hospitals, medical insurance and medical devices, showed significant increases in sales over the course of 2015; outperforming various other industries. The latest revisions to the Negative Investment List have also highlighted the Indonesian government’s willingness to further open up the sector to foreign investor involvement to realise the goals of the universal healthcare system (BPJS) and to try to stem the tide of Indonesians going abroad for healthcare services.
Having recorded significant growth of over 20% in 2014, Indonesia’s private health insurance industry began to feel some impact of the BPJS Health programme as the government began to clamp down on companies that were not registered to the system (See Health Insurance in Indonesia: Public Coverage No Threat to Private Sector). Executive Director of the General Insurance Association of Indonesia (AAUI) Mr Julian Noor estimated that the premium income of private health insurance companies only grew by a meager 3% in 2015. During the first quarter of 2015, private health insurance premiums were down 5% y-o-y to 1.25 trillion IDR. In contrast, BPJS Health has expanded significantly with 55 trillion IDR of premium income over the same period and 152 million policy holders.
In order to reap the benefit from the presence of BPJS Health, private health insurance providers need to actively cooperate with the agency to target employees of state-owned enterprises (SOE) and private companies who wish to have access to more premium level health services, while still being covered by BPJS. Currently, the premium contributions of this group are only 200 billion IDR so it still offers plenty of opportunities.
The number of hospitals and clinics in Indonesia continues to experience significant growth despite the economic slowdown which has seen consumer spending in other areas begin to slide. To date, 60% of hospitals in Indonesia are government run, primarily made up of community health centres called Puskesmas, with the remaining 40% of hospitals run by the private sector. Key private players in the industry include Siloam Hospitals (which is part of Lippo Group), Omni Group, Mayapada Group and Sinar Mas Group as well as Prodia Group for diagnostic laboratories. Many have announced ambitious growth plans to cater to the country’s rapidly growing middle class; particularly in Indonesia’s secondary cities. Siloam Hospitals set aside a capital expenditure of $80 million USD in 2015 to build ten hospitals and increase the bed capacity in their existing facilities, with future plans to grow their total portfolio of hospitals to 50 by 2017. Other hospital groups that have actively increased their investments in 2015 include Mitra Keluarga Karyasehat Tbk (Mika). The company carried out an initial public offering (IPO) in 2014 and aims to have 18 hospitals with 3,400 beds by 2019.
The growing number of high-quality hospitals and private clinics in Indonesia is expected to reduce health spending by Indonesian citizens abroad. According to data from the Ministry of Tourism and Creative Economy, 1.2 million Indonesian citizens go to Singapore, Malaysia and other countries each year for medical treatment. Every year, Indonesians spend around $700 million USD or equivalent to 7.5 trillion IDR on medical services abroad. While it will take more than just the presence of modern facilities to reverse this trend, particularly among the upper classes, the emerging middle and upper-middle classes offer a significant new pool of patients who are likely to be more open to receiving healthcare in their home country.
The presence of BPJS Health has undoubtedly contributed significantly to the growth of the hospital business as the programme has indirectly increased the number of patients. As of September 2015, the number of health facilities that have collaborated with BPJS Health reached 1,713 hospitals, 4,393 private physicians, 90 main clinics, eight D-type hospitals, 1,109 dentists, 3,020 small clinics, 9,799 community health centres, 719 army clinics, 571 police clinics, 1,793 pharmacies, and 882 optics. This trend will continue as the private sector seeks to complement the BPJS health system by offering premium healthcare choices for employers and individuals.
Indonesia imports nearly all of its medical equipment (97.2% in 2013, Cekindo) and the value of imports continues to increase by 5.4% each year. It is estimated that the total value of all medical device imports to Indonesia will reach $1 billion USD in 2018 (Frost & Sullivan). In contrast, total exports of medical equipment and supplies from Indonesia reached only $304.6 million USD in mid-2013, dominated by low added value products such as surgical gloves and bandages. Medical consumable products such as catheters made up 23.8% of total imports while diagnostic imaging equipment made up 35% (Cekindo). Indonesia’s dependence on imported high tech medical equipment from markets such as the USA and Europe, will continue as Indonesia’s scope as a manufacturing base remains more competitive in lower value added medical devices.
Further areas such as dental equipment and healthcare management IT infrastructure also present significant opportunities to medical equipment manufacturers that offer strong brand equity to work with local distributors and access the vast potential of the market. Local partners can assist foreign suppliers in navigating the complicated licensing requirements for registering medical equipment with the Ministry of Health which is required prior to customs clearance.
With the commencement of the ASEAN Economic Community in 2016, the government has been encouraging domestic drug companies to produce pharmaceutical raw materials locally to minimise their imports. Currently Indonesia relies on imports for 90% of its pharmaceutical raw material supply; the fallout from this reliance has been more acutely felt over the last two years given the drop in the value of the rupiah (See Overview of Indonesia’s Pharmaceutical Sector). This has made Indonesian pharmaceuticals more expensive for consumers, as well as for BPJS Health as a major buyer.
According to data from the Pharmaceutical Manufacturers Association of Indonesia, investment in the pharmaceutical sector in the country during 2015-2025 is projected to reach 215 trillion IDR. The amount is calculated based on the market potential of the country’s pharmaceutical sector in 2025 that is expected to reach 700 trillion IDR, which will consist of the domestic market making up 450 trillion IDR and the export market accounting for 250 trillion IDR.
The changes to the Negative Investment List in 2016 have now made pharmaceutical raw materials open to 100% foreign investment to encourage further growth in the sector and create a more integrated local industry (See Indonesia’s New Negative Investment List; A Big Bang?). Chemicals and biological medical products that are most in demand include paracetamol, penicillin, citric acid, new generation antibiotics and vaccinations, among others.
The latest revisions to the Negative Investment List, as part of the tenth economic policy package opened up 29 business sectors to 100% foreign ownership, five of which are in the healthcare sector. The five healthcare industry sectors in question are the pharmaceutical raw material industry, business and management consulting services or hospital management services, and three healthcare support services (medical equipment rental, laboratory clinics and medical check-up clinics). Meanwhile, the limitation on foreign ownership in acupuncture services stays at 49% and other healthcare support services have had their cap lifted to 67%.
Sectors in Healthcare Industry Open to 100% Foreign Investment
The vital signs for Indonesia’s healthcare sector remain strong in terms of future demand, particularly from the growing middle and upper-middle class for accessing private healthcare. A key challenge that remains in realising the full potential of Indonesia’s healthcare industry is that of qualified human resources ranging from surgeons to nurses to biomedical engineers. The ASEAN Economic Community should open up borders for the recruitment of health workers from outside of Indonesia to meet the shortfall; however, it will also encourage movement of qualified workers to go abroad in search of better pay and career opportunities. The healthcare sector in Indonesia will therefore need to start making investments not only in facilities but longer term in generating a skilled pool of qualified medical professionals, particularly outside of Java, that are incentivised to stay put rather than seek out employment overseas.
Global Business Guide Indonesia - 2016
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.