Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
the Indonesian
health care industry
post introduction
of universal health
coverage
Contents
Foreword — making a difference 4
Executive summary 8
I. Five tips for foreign investors on how to benefit from the growth
of the Indonesian health care sector 15
II. Catching the wave: key players share their experience and advice 23
VIII. Appendices 66
A: Interview with a private hospital serving private and UHC patients:
Siloam 67
B: Interview with a private hospital serving private patients only:
Mitra Keluarga 69
C: Regional population and GDP per capita 71
D: Health care expenditure as % of GDP (2008–2013) 71
E: UHC premium structure (2014) 72
F: Benefits covered by UHC in Indonesia, Thailand and the Philippines 72
G: Number of hospitals and beds by region (April 2015) 73
H: Number of health care professionals (2010–2014) 73
I: Hospital categorization in Indonesia (2013) 74
J: Hospital bed trend between public and private operators (2011–2013) 74
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 3
Foreword
Making a difference
Recent developments in the Indonesian
health care sector, as well as the push
toward integration in the ASEAN Economic
Community (AEC), offer exciting possibilities
for partnerships and investments in the
Indonesian health care sector at the early
stage of its growth curve.
4 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Thomas Wirtz
Partner, Transaction Advisory Services
EY Indonesia
Indonesian health care: Since the beginning of 2014, the focus of cities have a population of more than
a snapshot EU development aid for Indonesia has 500,000. In such areas, 70% of
moved from health to other sectors such childbirths occur at home, and the
Many of us take access to reliable as education and human rights. Aid from population widely relies on traditional
health care for granted, with the World international agencies, such as vaccines medicine and self-medication, which
Health Organization (WHO) calling it for infants, has also been reduced. The partly explains why rural bed occupancy
“a basic human right.” Yet about 150 implementation of UHC in Indonesia is ratios are lower than in urban areas.
million people globally suffer financial therefore timely. Tuberculosis and HIV/AIDS are a huge
catastrophe each year, and 100 million burden, especially in the eastern part of
are pushed below the poverty line, as a There are already more than 140 million the country.2
result of having to pay for health care. participants in Indonesia’s UHC system.
Some critics doubt that the Indonesian The health care landscape in Indonesia
Indonesia does not rank on par with its Government can attain its goal of publicly provides investors with both an
Association of Southeast Asian Nations insuring all Indonesian citizens and interesting economic opportunity and the
(ASEAN) neighbors with regard to residents by the end of 2018. However, chance to “do good” by improving the
health care, based on measures such as the exciting point about UHC is that once living standards of many people.
the numbers of hospital beds, physicians, it has been introduced, there is no Investors can make a major difference in
nurses and midwives per 1,000 people. turning back — as evidenced in other Indonesia through strategic investments,
Its maternal mortality ratio is among the countries where it has been implemented. bringing in expertise, finding innovative
highest in the world. solutions and putting down the
foundations of a robust health care
In 2013, 31% of Indonesia’s population of
The opportunity system for the future.
more than 250 million was uninsured; to be part of Indonesia’s
61% were government-insured and just development
8% enjoyed private health insurance.
However, at the beginning of 2014, the Fellow ASEAN member Thailand offers a
Indonesian Government introduced good example of how UHC can lead to the
mandatory universal health coverage creation of a better public health service
(UHC), locally known as JKN and for a whole nation.
administered by an agency known as
BPJS. In doing so, it demonstrated its Health education, prevention, promotion
commitment to the goals of the and rehabilitation are all critical parts of
Millennium Declaration that it had signed strengthening the health care of a nation,
in September 2000.1 particularly in rural areas, where many
1 United Nations Millennium Declaration signed on September 8, 2000, following a three day
Millennium Summit of world leaders
2 Franck Viault, Head of Cooperation at the EU delegation to Jakarta, speaking to EurActiv
on January 28, 2015
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 5
Foreword
6 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
4. Health care is a big sector Joyce Handajani from hospital operator high percentage of young people reaching
PT Mitra Keluarga Karyasehat Tbk working age. The sector is on the rise,
This study focuses primarily on hospitals (Mitra Keluarga) comments, “Drug with the local players being the most
but the health care sector encompasses procurement is key in managing our dominant still, and as with all nations,
many other symbiotic players, which we profitability, and the focus should be on health care is a critical part of its future.
will be covering in future publications. value, not volume.” Handajani says, “People in general,
An example is the pharmaceuticals especially in the cities and the younger
industry, whose business is closely Another example is the medical generation, they now know more about
entwined with the hospitals, and vice equipment industry. Players such as health care because of BPJS (UHC).”
versa. For example, up to 50% of the Siemens Indonesia (Siemens), currently
revenues of a hospital can come from serving niche segments, are considering According to the 2015 Frost & Sullivan
sale of medicines to its patients. entering the medium- to low-end product Health care Outlook, the Indonesian
Pressure on margin from UHC patients segments. However, apart from widening health care sector is expected to triple
affects manufacturers of generic drugs. the current geographic reach to from US$7 billion in 2014 to US$21
promising regions such as Sulawesi and billion in 2019.
“Private hospitals offering UHC services adding to their sales force, funding is
are increasingly putting pressure on critical to achieve this goal. I am very excited by the prospects
manufacturers of generic drugs, arguing for this sector, and I welcome the
that no price differentiation should be It is our belief at EY Indonesia that there opportunity to discuss this report with
made between drugs sold to private and are still healthy returns to be made in the you personally in more detail.
public patients,” Dr. Frederic Morier, health care sector in Indonesia, if business
President Director of generics plans are underpinned by sound strategy.
manufacturer Sandoz said in an interview This country is after all one of the most
with EY Indonesia. populous nations in the world and has a
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 7
Executive summary
Indonesia’s spending on health care is one of the lowest The recent introduction of Indonesian Government-
in ASEAN. The country requires significant investment supported Universal Health Coverage (UHC) for all citizens
to expand and upgrade its poor health care infrastructure. and residents provides opportunities for investors to
develop the health care sector.
Indonesia‘s health care system is unable to adequately service
its population of more than 250 million, due to a severe lack of The new Indonesian Government-supported UHC system —
qualified physicians, nurses and hospital beds. The country has locally known as JKN, and administered by an agency known
one of the lowest levels of spending on health care in ASEAN. as BPJS Health — will provide all citizens and residents with
Thus, its health care infrastructure is in a poor state and access to basic health coverage by the end of 2018. Although
requires significant expansion and upgrading. there are challenges, the new scheme offers opportunities for
investors to play a role in developing affordable health care in
Indonesia. Some 140 million Indonesians have already enrolled
in the new scheme which increases access to and affordability
of health care for low-to-middle income patients, through
subsidies and a Coordination of Benefits (CoB).
The rising middle class is expected to drive demand The rising middle class, with its rather unhealthy lifestyle,
for affordable health care. is expected to drive an increase in lifestyle-related
diseases.
To benefit from an increased demand for affordable health
care, investors should carefully survey the needs of the low- to Lifestyle changes within the rising middle class, and the fact
middle-income class and focus on strict cost management and that more than 60% of Indonesian men smoke, will lead to more
resource sharing with other hospitals. lifestyle-related diseases such as cardiovascular disease,
tuberculosis and cancer. The national maternal mortality ratio
“With UHC, the poor and near-poor will definitely go and seek (190 per 100,000 live births) is among the highest in
treatment if they get sick, and we expect to see growth in terms Southeast Asia, although wide variation exists across the
of value and also revenues. Current UHC contributions are regions, both within Indonesia and ASEAN. The WHO predicts
between 5% and 7% of revenues but going forward, the Group that by 2030, lifestyle-related diseases will be the main cause
expects contribution from UHC to be up to 12%,” says Romeo for 87% of deaths.3
Lledo of Siloam Hospitals Group, an owner-operator of 20
hospitals in Indonesia.
Even those who could afford private health care, would opt for
some treatments under the UHC because private insurance
claims have a ceiling, while UHC does not.
8 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Before the introduction of UHC in 2014,
Indonesia spent only 3.1% of its GDP on health
care in comparison to the Philippines (4.4%)
and Thailand (4.6%).
Source: World Bank and OECD
Indonesia faces a shortage of hospitals, with rural Foreign investors are allowed to operate specialized
areas being most severely underserved. hospitals in a market where only 23% of hospitals are
specialized.
Indonesia’s health care facilities are expanding year by year —
but require significant further expansion and upgrading. By law, foreign investors are restricted from operating general
Currently, there are approximately 2,200 private and public hospitals but are allowed to hold up to 67% of shares in a
hospitals, with one of the lowest bed-to-population ratios specialized hospital. Maternity hospitals are also closed to
worldwide (0.8 per 1,000 inhabitants in 2012). Conservative foreign investors.
estimates suggest that Indonesia needs an additional 500,000
hospital beds. The country as a whole lacks a robust health care
infrastructure and qualified staff, particularly in rural areas.
Health care development in urban areas, where 60% of the
population resides, has driven high demand and bed occupancy,
while rural areas remain underserved.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 9
Executive summary
Building a new hospital from scratch is difficult, due to Qualified doctors and nurses are in high demand, but
a lengthy and complicated licensing process. This barrier the education system has yet to increase its capacity.
to entry attracts investors to existing small hospitals
that have the potential for improvements. Developing and retaining qualified doctors to support the
growth in health care is a key concern for the industry. There is
Building a new hospital takes around three years, largely due to a long and expensive study period, earning prospects are
a lengthy licensing process. Goodwill, prior relationship with the rather low compared to other professions in the early years,
Indonesian Government and an established patient base are there is a shortage of training facilities and an exclusive
other contributory factors as to why existing small hospitals are professional culture among doctors. Such factors mean there
being targeted by investors who wish to get involved in this are only a small number of graduate doctors and specialists, for
sector. However, acquiring smaller hospitals comes with its own example, in the field of gynaecology. Nurses are available in
challenges, as some have a very complicated shareholder sufficient numbers, but relatively few have sufficient skills due
structure, outdated management practices and an existing to low grade training.
culture that is difficult to change.
The AEC could address the lack of qualified doctors, A high conversion rate of hospitals serving UHC and private
but new barriers are making it harder for foreign doctors patients can translate into higher profitability through
to practice in Indonesia. increased out-of-pocket spending and it can help shorten
ramp-up time.
The launch of the AEC at the end of 2015 is likely to help
mitigate the shortage of doctors in Indonesia, because it will UHC fees are low and, in some cases, below cost, which lowers
improve mobility of doctors from other ASEAN countries. margins for hospitals in the UHC network and necessitates
However, the Indonesian Government has recently introduced careful management of costs and working capital. Selected
new barriers to protect the local labour market, and regulations experience shows that a high conversion rate (from in- to
ban foreign doctors from gaining automatic right to practice in outpatients) of hospitals serving both UHC and private patients
Indonesia — they have to pass the board exams and language can translate into higher profitability through increased out-of
test administered by the Indonesian Medical Council (KKI).4 pocket (OOP) spending compared to hospitals serving private
patients only. A
̏ nastasia Trivena from Siloam adds, “Based on
“In the long-term, inflow of foreign doctors will happen. our experience, a hospital catering to both UHC and private
Indonesia will eventually open the practice to everybody as patients shortens our ramp-up period of 5 years to 3 years to
otherwise the health care system will be left behind,” observes reach 80% utilization rate of the hospital’s full capacity, hitting
Romeo Lledo from Siloam. “The country needs not only doctors 30% EBITDA margin in 3 years instead of our original model of
and nurses but also non-clinical staff such as hospital 5 years.”
administrators.”
10 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“A forecast GDP growth of above 5% per year
and the rising middle class will inevitably
drive the demand for affordable health care.”
Thomas Wirtz, EY
The Indonesian Government is committed to supporting BPJS Health premiums are likely to increase.
the UHC scheme.
Health insurance premiums for BPJS Health are likely to
BPJS Health, which administers UHC, has realized deficits — rise in 2016. BPJS Health has already asked the House of
mainly due to a higher than anticipated claims ratio of 104% Representatives for an increase, however, approval is subject
vs. a budget of 90%. That said, the Indonesian Government has to the results of an ongoing audit by a commission of the House
shown its commitment to the UHC scheme, as demonstrated by of Representatives. Increased premiums would add costs to
recent additional contributions to fund BPJS Health’s deficits. employers, but also put pressure on the federal budget.
Other countries’ experiences suggest that once UHC is
implemented, there is no way back for governments. However,
to manage the rising costs of BPJS Health, waiting periods
(after registration) will be extended or benefits might be
reduced in the future, even though BPJS Health is currently of
the view that social benefits should not be reduced.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 11
About this report
This report was prepared approximately Joyce Handajani, Chief Financial Dr. Muhammad Nurussalam,
18 months after the introduction of Officer, Mitra Keluarga Hospitals Group Senior Manager of Health Services
universal health coverage* (UHC) in (Mitra Keluarga) Cooperation, Hermina Hospitals Group
Indonesia in January 2014. (Hermina)
A. Heri Iswanto, PhD, Director of General
Its findings are based on an analysis Affairs, Kemang Medical Care (KMC) Anastasia Trivena, Investor Relations
of UHC and the health care system in Manager, Siloam Hospitals Group
Indonesia, and on interviews with R
̏ omeo Lledo, Group President Director, (Siloam)
various health care providers and EY Siloam Hospitals Group (Siloam)
experts, focussing primarily on the D
̏ r. Stefanus Widananta, Health care
hospital sector. Dr. Frederic Morier, Country Head, Country Lead, Siemens Indonesia
Indonesia, Sandoz (Siemens)
Our thanks are due to the following for
their time and insights in compiling this
document (in alphabetical order, by
surname):
* Universal health coverage (UHC) is defined by the World Health Organization (WHO) as a situation
in which all people have access to promotive, preventive, curative and rehabilitative health services,
of sufficient quality to be effective, while also ensuring that people do not suffer financial hardship when
paying for these services.
12 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Summary for investors
Page 28
Macroeconomics
1. Large population
2. Demographic bonus
3. Underspending in the sector
Page 59 Page 46
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 13
I. Five tips for foreign
investors on how to
benefit from the growth
of the Indonesian
health care sector
1. 2. 3. 4. 5.
Focus on specialized Form partnership Start in Invest in Watch your costs
affordable with locals second-tier cities good doctors and working capital
health care requirements
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 15
1. Focus on specialized affordable health care
Foreigners are restricted from ownership With the introduction of UHC:
in general hospitals. The upper middle
class (as a % of total population) has a) Scale has become even more b) Small specialized clinics provide entry
risen significantly from 0.3% in 2003 to important. “Hospitals have started to points to tap UHC patients and the
1.5% in 2010. However, high-end private maximize their utilization through opportunity to convert them into
specialized health care remains a niche better roster management. high-margin private patients.
market in Indonesia and competes with Additionally, most of my hospital Conversion data remains limited at
medical tourism to other ASEAN clients are planning to add this stage, but large players, such as
countries. Until the quality of medical approximately 20% to 30% bed Siloam, have already started to
professionals is upgraded and the capacity within the next one to two develop mini emergency hospitals
perception on the quality of health care years,” says Sahala Situmorang, located at shopping malls for faster
by rich Indonesians changes, only Partner at EY Indonesia. “Scale is access and to benefit from referrals
selected opportunities are seen. important because it lifts profitability, to their larger hospitals (refer also
as the main costs associated with to the interview with Siloam in this
running a hospital are fixed in nature. report).
It will also help to attract doctors
[through the ability to pay higher
salaries],” he adds.
16 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“The Indonesian Government is fully
committed to UHC.”
Romeo Lledo, Siloam
“When selecting a local partner, investors For foreign investors, what is more
should have a clear road map and think important than investing capital into the
how they can add value,” says Sahala venture is to bring in much-needed
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 17
Five tips for foreign investors on how to benefit
from the growth of the Indonesian health care sector
18 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
4. Invest in good doctors
In a market with a severe lack of qualified 1. Cooperate with universities and take “I don’t think the AEC will help mitigate
doctors, investors need to recruit and on doctors before they graduate. the shortage of doctors in Indonesia (by
retain good doctors, in particular, allowing doctors from other ASEAN
specialists who play an important role in 2. Provide access to high quality countries to practice in Indonesia) in the
upholding the standard of care and medical equipment and training. next few years because of the barriers to
reputation of a hospital, which are entry imposed by the Indonesian
ultimately profit-drivers in the business. Government. However, investors whose
specialists to continue working in strategy is to gain competitive advantage
Joyce Handajani from Mitra Keluarga has other (overseas) practices, in the sector through developing
the following strategy on recruiting and research centers or universities. hospitals with world-class medical care
retaining good doctors: should monitor the developments
closely,” Thomas Wirtz, Partner at EY
Indonesia, says.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 19
Five tips for foreign investors on how to benefit
from the growth of the Indonesian health care sector
20 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“At Mitra Keluarga, full-time doctors are
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shareholder ...
Joyce Handajani, Mitra Keluarga
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 21
22 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
II. Catching the wave:
key players share their
experience and advice
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 23
Catching the wave: key players share their experience and advice
Siloam Hospitals Group — stream, but one that is also a cost driver, Mitra Keluarga
the largest hospital is consumables, such as drugs. “Our Hospitals Group —
experience is that Siloam’s procurement
operator in Indonesia department is clearly focused on costs a hospital operator
catering to private and and has the last say when it comes to serving private patients
orders,” a supplier of medical supplies
BPJS patients observes. Mitra Keluarga Hospitals Group (Mitra
Keluarga) is a hospital operator with
Siloam Hospitals Group (Siloam) is the Siloam is planning to open 40 new 11 hospitals and 1,647 beds located in
largest hospital operator in Indonesia hospitals outside of metropolitan Jakarta Greater Jakarta, Surabaya and Tegal. On
with 20 hospitals and 3,900 beds and 5 additional hospitals in Jakarta by March 9, 2015, Mitra Keluarga raised
catering to private and BPJS patients. end of 2017, all catering to private and more than US$300 million from its initial
Siloam’s vision is to provide “accessible BPJS patients. Siloam‘s expansion plan public offering of shares.
and affordable world-class medicine to all faces challenges, such as ensuring
Indonesians,” Romeo Lledo, President consistent quality due to a scarcity of It caters exclusively to private patients,
Director of Siloam, says. Therefore, the qualified medical personnel (particularly and is currently not serving BPJS
introduction of UHC did not change in second-tier cities), but through its patients. Previously, Mitra Keluarga tried
Siloam’s overall business strategy. Four sizeable in-house training facilities, to open a wing in one of its hospitals to
years ago, well before the introduction collaborations with local and international UHC patients, but BPJS Health required
of UHC, Siloam had already opened a universities and an increased use of the entire hospital to be made available
hospital in Karawaci catering to near-poor telemedicine, Siloam is equipped to deal to UHC patients, which Mitra Keluarga
and poor patients, both public and private. with the challenges it faces. did not want.
Siloam’s business model focuses on Romeo Lledo is optimistic about the Its expansion plan of 11 hospitals is
quality and scale to benefit from a future of UHC in Indonesia. He predicts focused on the affluent Greater Jakarta
higher utilization of their hospitals, that UHC will increase its network and area and Surabaya, which have a better
which in turn helps to manage volume since the Indonesian supply of doctors. “In Jakarta 0.88
profitability as most of the operating Government, as previously announced by doctors serve 1,000 patients compared
costs of a hospital are fixed in nature. Indonesia’s President Joko Widodo, will to a ratio of 0.3 in rural areas,” says
While scaling up its operations, Siloam mandate private hospitals to participate Joyce Handajani, Chief Financial Officer
has also developed centers of excellence in UHC in the future. Despite UHC for all of Mitra Keluarga.
in anticipation of a trend toward Indonesians by the end of 2018, Romeo
specialization once scale has been Lledo is convinced that the private Mitra Keluarga believes that a mandatory
achieved, for example establishing hospitals business will not change acceptance of BPJS patients by private
specialist cancer centers. Since the because benefits, such as the free-choice hospitals as recently announced by the
introduction of UHC, Siloam has focused of doctors, reduced waiting times and Indonesian President will significantly
on cost management to achieve its single occupancy rooms, will continue to drive up costs and claim ratios, as
profitability targets. Another revenue draw patients to private hospitals. services are used when they are offered.
24 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Handajani suggests that the discussions Kemang Medical Care — revenues can be derived from the sale
between BPJS Health and the private a private specialist of medicines, KMC practices rational use
insurance industry on the Coordination of medicine (RUM).
of Benefits (COB) between private hospital for women
insurers, BPJS Health and hospitals and children planning We previously interviewed a member
should move forward and a regulation on of the KMC Board (EY Insurance
the implementation of COB should be
on developing the Newsletter, February 2015), who shared
issued soon because “we would like to tandem hospital model his plans with us. He believes that UHC
offer COB to our patients but the opens new opportunities for players like
absence of a clear regulation passes too Kemang Medical Care (KMC) is a KMC, though the UHC business is of low
much reimbursement risk to private private specialist hospital for women margin but high volume.
hospitals.” and children located in an affluent
neighbourhood of South Jakarta. It has KMC is looking to develop UHC hospitals
In the first quarter 2015, year-on-year, a capacity for 55 in-patients and has a outside central Jakarta, where they
Mitra Keluarga had witnessed a decline in range of specialist clinics operating on believe rents and fixed costs are lower.
out- and in-patient numbers due to site offering services for mother-and- The hospitals on KMC’s radar are those in
patients migrating to BPJS Health, but child wellbeing, including lactation heavily-built up, middle- to low-income
Handajani believes that this trend will be clinic, parenting psychology, dentistry, areas, currently under-performing
reversed once patients and companies nutrition and aesthetics. It caters because of poor management and poor
see the benefits of quality services and exclusively to private patients and has facilities.
higher productivity that private hospitals no plans to open its existing facilities to
offer. UHC patients due to high real estate and “With equipment sharing, we can make
other costs. Moreover, as a specialist it happen,” the KMC Board member
Handajani is confident that the center, it is exempt from having to comments. “We will focus on the
profitability of Mitra Keluarga will allocate 20% of its total beds to public important things, like quality care, so
remain stable in the next five years. patients (Class III). that we are able to deliver the same
However, this requires tight cost quality care at a much lower cost.
management. “Apart from the doctors, KMC has a business model that focuses However, there are challenges that come
we need to manage the procurement of on quality and safety and the with the opportunities, and we see
pharmaceuticals. Between 45% and management is constantly working on management as one of the big
50% of our group’s total revenues are improving standards, ranging from challenges.”
generated from pharmaceuticals. attracting more qualified experts to
Therefore, we need to be good at practice on its site, to weekly training
managing the corresponding costs,” sessions for its nursing and midwife staff.
she says. In an industry where up to 50% of
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 25
26 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
III. Toward the next
stage of development
Indonesian
Macro Rise of the Health
health care
economics middle class profile
spending
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 27
Toward the next stage of development
III.I Macroeconomics and Indonesia’s GDP per capita, 2009–2019 (US$; 2015–2019 are forecasts) Chart 1
5,200
Indonesia, with its population of more 4,570
than 250 million, is set to reach the next
4,010
stage of its development. It is the largest 3,551 3,559 CAGR(F): 10.8%
3,470 3,475 3,510
economy in South East Asia: over the
2,947
decade to 2013 its economy expanded
2,272 CAGR: 11.2%
by an average of 5.7% per year to a
nominal GDP of US$868 billion,
according to World Bank statistics and
the growth story is widely expected to
continue.5
2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F
In its five-year forecast from March
Source: EIU
2015, the Economist Intelligence Unit
(EIU) predicts that Indonesia’s annual Estimated 2015 average GDP
growth will remain above 5% between per capita by region, US$ Table 1
2015 and 2019. Combined with the
Indonesian Government’s low debt of Java and Bali, Kalimantan, Papua and Estimated 2015 average GDP
less than 25% of GDP, means that the Sumatra are Indonesia’s most affluent per capita by region, US$ Table 1
country is well placed to weather most regions, with an average GDP per capita
shocks.6 of more than US$3,600 (2015 estimate;
Kalimantan 4,768
see Table 1). These regions benefit from
Nominal GDP per capita grew at a relatively strong mining, agricultural and Java and Bali 4,711
compound annual growth rate (CAGR) tourism industries. Less affluent areas, Papua 4,289
of 11.2% between 2009 and 2013 to which include Maluku and Nusa
Sumatra 3,607
US$3,475; the EIU predicts that it will Tenggara, are mostly located in eastern
rise at a CAGR of 10.8%, from US$3,510 Indonesia, although the more affluent Sulawesi 2,222
in 2014 to US$5,870 in 2019, as Papua is also in this region.
Nusa Tenggara 1,214
illustrated in Chart 1.
Maluku 1,055
28 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Household expenditure in US$
per month (to nearest dollar) Table 2
Source: BCG
Source: BCG
7 The Nielsen Global Survey of Consumer Confidence and Spending Intentions’ — Nielsen, May 2014
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 29
Toward the next stage of development
In summary, the trends concerning the Rise of the middle class Rise of the “consuming class”
middle class are as follows (see also (2003 and 2010) Chart 2 as forecast by McKinsey
Charts 2–4): (2010 and 2020F) Chart 3
• The
̏ middle class grew from 82 million 38.5%
265
to 136 million between 2003 and 2003 Consuming
2010 240 class total
2010, as per ADB data. Below
32.1% 45 85
• McKinsey
̏ forecasts that the consuming
Population in million
40
5.1%
Despite these different definitions, the
0.3% 1.3%
McKinsey and BCG studies both show 11
1 3
that the middle class in Indonesia will Expenditure Expenditure Expenditure 2010 2020F
continue to grow, after a strong increase US$ 2–4 US$ 4–10 US$ 10–20
between 2003 and 2010. Source: World Bank and Asian Development Bank Source: McKinsey and Indonesian Central Bureau
Note: percentages refer to share of total population for Statistics (BPS); F — Forecast
This rising middle class with its increased
buying power, combined with basic
health coverage provided by UHC, will
drive the demand for affordable quality Rise of the middle class as estimated by BCG (2012 and 2020F) Chart 4
public and private health care in
Indonesia.
3 2012
Elite
7 2020F
7
17
23
Upper middle
49
42
Middle
68
44
Emerging middle
51
65
Aspirant
48
65
Poor
28
Source: BCG and Indonesian Central Bureau for Statistics (BPS); F – Forecast
30 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“Given that the maternal mortality ratio is still
high in Indonesia, there are opportunities for
private hospitals to help reduce this number.”
Dr. Muhammad Nurussalam, Hermina
III.II Indonesian There has been a dramatic improvement The maternal mortality ratio (190 per
health care spending in socio-economic indicators in Indonesia 100,000 live births) in Indonesia is
in recent decades. Despite relatively among the highest in Southeast Asia,
low health care spending, life expectancy though wide variation exists across the
in Indonesia was 69 years for males and Southeast Asian region. The World Bank
Health care spending in Indonesia has 73 years for females in 2012. The estimates that the lifetime risk of a
not followed macroeconomic trends. under-five mortality rate (per 1,000) mother dying of causes related to
Total public and private spending on significantly declined from 84 in 1990 childbirth in Indonesia in 2013 was one in
health care, as a percentage of GDP is to 29 in 2013. 220 compared with one in 2,900 in
significantly behind the average for both Thailand and one in 1,600 in Malaysia.
ASEAN member countries and developed However, according to a statistical health
markets (see Appendix D). Public profile of Indonesia released by the WHO
spending, in particular, lags behind the in January 2015, there is still much room
average for both ASEAN and developed for improvement in the health situation
countries, as shown in Chart 5. of mothers, children and adults.
12.3 Total
Public
Private
61%
7.5
6.0
61% 52%
Myanmar Brunei Lao PDR Indonesia Thailand Malaysia Phillippines Singapore Cambodia Vietnam ASEAN Developed
Darussalam markets
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 31
Toward the next stage of development
Communicable diseases were once the As seen in Chart 7, the leading cause of Indonesia, contributing to cancers and
leading cause of death in Indonesia but death in Indonesia for the year 2012 was chronic respiratory diseases (see
the proportion of deaths attributable to stroke followed by ischaemic heart Chart 8).
lifestyle-related diseases has risen, disease.
driven by changes in lifestyles. The WHO In response to its high mortality rates,
predicts that in 2030, 87% of deaths will The high prevalence of tobacco use, Indonesia signed the Millennium
be attributable to these diseases as a especially among Indonesian adult males Declaration at the UN Millennium Summit
main cause, compared to 71% in 2014, (67%) compared to Southeast Asian in September 2000 and committed itself
as shown in Chart 6. Indonesia recorded males (34%), is likely to be a significant to working toward meeting the UN
1.6 million deaths in 2014. cause of lifestyle-related diseases in Millennium Development Goals (MDGs).
Deaths caused by lifestyle-related Top 10 causes of death in Indonesia (2012, in thousands of people) Chart 7
diseases in Indonesia 2014 Chart 6
Tuberculosis (4.3%) 67
Source: WHO
32 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
These include the reduction of under-five Lifestyle-related diseases
mortality ratio by two-thirds and in Indonesia (2014) Chart 8
maternal mortality ratio by three-
Chronic respiratory
quarters by 2015, as per the 2011 MDG diseases
Report. While Indonesia is on track to Diabetes 5%
Cardiovascular
achieving the former, a maternal 6% diseases
Injuries
mortality rate in 2013 of 190 per 7%
37%
100,000 live births means that the 2015
MDG of 102 per 100,000 live births is Other
10%
unlikely to be achieved, even in light of
the introduction of UHC (as described in
the next section).
Cancers
13%
Communicable maternal,
perinatal and nutritional
conditions
Source: WHO 22%
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 33
IV. Universal health
coverage (UHC)
in Indonesia
Indonesia’s Participation
Referral Case study:
five-year of hospitals Funding
system Thailand
UHC goal and insurers
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 35
Universal health coverage (UHC) in Indonesia
36 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Introduction of UHC: timeline Chart 9
End of 2013
*All hospitals refer to public hospitals (which must register with BPJS) and private hospitals which are not required to do so.
Source: BPJS website, Kompas, Tempo and Indonesian Public Health Insurance website
Note: Prior to the introduction of UHC, Indonesia’s public health insurance landscape comprised of various schemes (e.g., Jamkesmas, Jamkesda, Askes)
which will eventually be merged under the UHC scheme and administered by BPJS Health.
The fact that registration with BPJS Health is mandatory has raised concerns among companies and private insurance providers, who wonder whether
the current public health infrastructure can adequately offer services similar to those offered by private health plans. As a result, in a highly competitive
market for skilled labor, companies may incur double costs by participating in UHC while also maintaining their current health benefit plans.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 37
Universal health coverage (UHC) in Indonesia
IV.II Participation of There are concerns that the Indonesian is, which insurance plan has the primary
Government funding is insufficient. Such payment responsibility and the extent to
hospitals and insurers concerns mainly focus on the level of which the other plan will contribute when
government subsidy for health care for an individual is covered by more than one
Public hospitals and insurers are the poor, which is well below market cost. plan.
automatically registered with BPJS This shifts the burden on to health care
Health. Registration of private hospitals providers, who may have to resort to A template of a COB agreement was
and insurers is optional. However, this is compromising the quality of care and agreed by the joint teams of the
going to change in the future as treatment or may not participate in the Indonesian Life Insurance Association
announced by President Joko Widodo in program at all, according to Professor (AAJI) and Indonesian General
May 2015. According to an article from Thabrany, Health Policy Professor from Insurance Association (AAUI) and BPJS
the Jakarta Globe, 617 private hospitals the University of Indonesia, speaking to in April 2014. By the end of February
(44%) have already registered with BPJS the Establishment Post in November 2015, according to a BPJS news release,
Health as of February 2015 — though this 2014.10 51 insurance companies had signed COB
definition of “private hospitals” includes agreements, however, those signed
both state-owned hospitals and privately BPJS Health allows the Coordination of agreements differ from each other and
owned hospitals (both nonprofit and Benefits (COB) with private insurers, for there are five versions. AAJI and AAUI
profit-based).9 Meanwhile, BPJS Health health plans that provide coverage for a are trying to harmonize the terms and
stated that 51 private insurance person who is also registered with BPJS conditions of COB agreements with BPJS
companies (35.8%) had registered as of Health. This aims to determine the for all insurers.
February 2015, and the number is rising. respective payment responsibilities, that
9 ‘Health Care Operators Eye a Bigger Role in BPJS’ — Jakarta Globe, March 2015
10 ‘Inadequate Funding May Hamper Indonesia Health Insurance System’ —
Establishment Post, November 2014
38 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
All BPJS hospitals and 28 private IV.III Referral system first level public health care facility,
hospitals (as of January 2015) accept usually to a public hospital.
the COB scheme, which provides patients UHC operates a cashless referral model.
under additional private health coverage Refer to Chart 10 for an illustration of UHC has sparked complaints from
with a greater choice of hospitals. If no claim procedures. participants, due to its rigid referral
COB agreement is signed, the insurer can system that decreases flexibility in
offer new products that complement the Members must choose a primary care choosing health care facilities and
UHC scheme. facility from BPJS Health, usually a public reduces employees’ productivity. Travel
health center such as an Indonesian costs can be high for employees who
“We would like to offer COB to our Government-mandated community work in remote areas but are registered
patients, but a regulation on the health clinic, locally known as at only one distant first level public
implementation of COB has yet to be Puskesmas. The first treatment must health care facility. Health risks can also
issued and it is unclear when this will occur here unless it is an emergency. result from delayed treatment, which can
happen. It is important that the Secondary care is by referral from the be driven by inefficient processes.
discussions between BPJS Health and
the private insurance industry are
moving forward, because the absence of BPJS claim procedures (simplified) Chart 10
a clear regulation passes too much
reimbursement risk to private hospitals.
The critical discussion point is in relation
BPJS
to costly treatment to be fairly shared 1 Participant 6 Claim
with private insurers who typically registers for
UHC scheme
impose a ceiling on costs while BPJS
with BPJS
Health has no ceiling,” Joyce Handajani
from Mitra Keluarga says. An insurance
market participant adds: “The issue is
that BJPS Health wants to collect Secondary care
premiums first and then pass the Participant 4 Claim
facility
appropriate proportion on to private
insurances. However, private insurances
2 BPJS 5 Assigned public
are concerned that the chronic
assigns health care facility
underfunding of BJPS Health might lead participant to refers participant
to a collection risk for private insurers.” one primary to secondary care
care facility facility when advanced
Assigned primary care is needed
care facility
3 Visit
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 39
Universal health coverage (UHC) in Indonesia
40 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
The higher than anticipated claim ratio currently low, despite many contribution interview from March 2015 that “BPJS
for 2014 was mainly a result of: assistance recipients seeking expensive Health is financially sustainable as it is
treatment, resulting in higher claims). regulated by federal laws. If it becomes
• Less than anticipated cross unsustainable, then there are three
subsidization. It was assumed that In September 2014, the Indonesian methods of intervention: firstly, the
services for the poor or near-poor Government announced an allocation of Indonesian Government can inject
would be offset by more affluent IDR20 trillion (US$1.6 billion) for BPJS further funds; secondly, premiums can
members who are more likely to use Health, to be taken from its 2015 federal be adjusted as necessary; or thirdly,
private facilities. This has not (yet) budget. In February 2015, the Ministry of benefits/services can be adjusted as
occurred. Finance announced that a contribution of necessary.” Though Fahmi Idris also
• Adverse
̏ selection effect. High-risk IDR3.5 trillion (US$264 million) would expressed his view that the third option is
participants joined the UHC program be made to BPJS Health to cover deficits unrealistic as benefits to society should
and sought immediate (high cost) arising from the first year of operation. not be reduced.
medical treatment. “Out of 140 million The Ministry of Finance also announced
BPJS members, 9 million were already that a reserve of IDR1.5 trillion (US$120 In April 2015, according to the Jakarta
sick and sought for treatment. No million) would be made to cover potential Post, the House of Representatives
wonder that the BPJS cost budget was deficits if the contribution proved to be initiated an audit of BPJS Health’s
exceeded in 2014,” says Romeo Lledo insufficient. performance, to be conducted by
from Siloam. BPJS Health has partly Commission IX, which monitors health
closed this gap by recently In March 2015, BPJS Health announced and welfare. This audit was tasked with
implementing a seven-day waiting that premiums for contribution assistance assessing whether it would allow
period between first registration and recipients will increase in early 2016. Ifran premiums to be raised, as BPJS Health
the start of coverage. Humaidi, Head of Public Relations at BPJS had requested. However, according to
Health, stated that “in accordance with the newspaper, the audit working
The Indonesian Government and BPJS Presidential Regulation No. 111/2013 committee was aiming to tackle possible
Health aim to reduce the claim ratio regarding public/social insurance, registration irregularities as a first step in
closer to 90% and estimate that the claim premiums are to be adjusted or reviewed order to save money without raising
ratio for 2015 will drop to 98.25% — at least once every two years.” premiums. Dede Yusuf, Head of
mainly through higher participation, as Commission IX, told the Jakarta Post that
they do not anticipate that premiums will In response to claims that the deficit he hoped such an audit could help BPJS
rise until 2016. Meanwhile, claims paid experienced by UHC may lead to Health save “up to 10%,” as a result of
are also expected to rise, but at a lower bankruptcy of BPJS Health, Fahmi Idris, helping prevent “wasteful spending” by
rate than premiums (premium levels are CEO of BPJS Health, said in a Tempo providers and patients.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 41
Universal health coverage (UHC) in Indonesia
Case study:
42 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Thai households suffering from medical impoverishment (1996–2009) Chart 13
160
before UHC
140
Number of households (in 1,000s)
80
77 after UHC
60 70
59
40 49
40
20
52
47
45
41
34
13
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 43
V. Bridging the gaps:
challenges and private
support
Lack of
AEC 2015:
qualified Shortage Mitigation Foreign
help from
physicans and of hospitals of shortage ownership
outside?
nurses
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 45
Bridging the gaps: challenges and private support
V.I The gaps Comparison of health care infrastructure and resources in 2012 Chart 15
1,000 1,000
800 800
Source: OECD
46 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Ratio of hospitals and beds-to-population, by region (April 2015) Table 3
Ratio of hospitals and beds-to-population, by region (April 2015) Table 3
Hospital Bed
In recent years, the number of people Compared with other ASEAN countries
served by each hospital bed has risen. and developed markets, Indonesia is
In 2012, one bed served more than facing a massive undersupply of
1,000 people; with huge support from specialists, general physicians, nurses
the 45% CAGR increase in the number and beds. Quantity is not the only issue:
of private hospitals from 2011 to 2013, the lack of qualified staff is equally
each bed now serves 914 people critical.
(see also Table 3). Nonetheless, this
10% CAGR improvement in bed-to-
population ratio is still far below the
Southeast Asian average.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 47
Bridging the gaps: challenges and private support
48 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Physician supply chain Chart 16
Foreign
practitioners
General 81,131
practitioner (2014)
Objective
Structured
Bachelor Doctor Internship Clinical
Examination
Academic stage Clinical Under supervision of (UKDI)
+ professional Komite Internship Dokter
clinical practice Indonesia (KIDI)
~7,000 Doctor
Graduates per 3–6 pool
3.5 – 7 years ~1.5 – 3 years ~1 year year (2014) years
Specialist
Depending on
chosen field
(~31 fields of
study) Specialist
doctor
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 49
V.III Indonesia faces operational target; a ratio exceeding the above the ideal rate, which indicates a
ideal percentage indicates poor hospital need for additional beds. Our
a shortage of hospitals, safety and efficiency. A higher BOR also understanding of regions with lower
with rural areas reduces the speed of admitting patients BORs suggests that:
severely underserved with higher care needs and increases the
risk of cross-infection in overcrowded • People
̏ from less developed regions
wards, as patients are less likely to be are accustomed to traditional and
Indonesia currently has about 1,562 assigned toward divisions dedicated to affordable medication or self-
public and 666 private hospitals (2013). their specific diseases. medication.
Most of the hospitals are located in Java
and Bali (1,219), Sumatera (511), The BORs presented in Chart 17 are • The
̏ severe shortage of available
Sulawesi (182) and Kalimantan (142); indicative, as we have not been able to quality health care facilities in rural
together, these hospitals will serve 93% verify the accuracy of numbers published areas forces the population in second-
of the projected 255 million population in by the Ministry of Health. Possible tier cities to either seek medical help
2015 (see Appendix G). explanations for BORs exceeding 100% from outside the region (therefore
could be patients not having used formal high BORs in urban areas) or, if they
While Indonesia’s ratio of hospital beds hospital beds (e.g., occupying spare cannot afford that, to seek traditional
to population is the lowest in ASEAN beds), the timing of incoming and medication
and among the lowest in the world, the released in-patients or “double
average bed occupancy rate (BOR) of counting,” as patients are moved • Around
̏ 67% of childbirths in rural
64% in 2015 was significantly below between hospital wards. Despite areas take place at home, compared to
the Indonesian Ministry of Health’s ideal uncertainties as to the accuracy of BORs, 33% in urban areas, according to a
ratio of between 80% and 85%. BOR is the message is clear: highly populated 2011 WHO estimate.13
used as a measure of quality and is an regions such as Java and Bali have BORs
50 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“There are certainly still opportunities in
those (first-tier) cities, but I see that local
hospitals I spoke to are eying second-tier
cities such as Palembang and Batam.”
Sahala Situmorang, EY Indonesia
Sulawesi
Jakarta Papua
East Java
BOR
BOR Population: 4 million
129%
109% 51 hospitals BOR: 59%
Nusa Tenggara
Java & Bali
Population: 9.9 million
Population: 149 million
64 hospitals BOR: 66%
1,219 hospitals BOR: 83%
Source: Ministry of Health and State Ministry of National Development Planning (Bappenas)
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 51
Bridging the gaps: challenges and private support
V.IV How private Trend of general practitioners (GPs) and specialist doctors in Indonesia
hospitals are helping (2010 – April 2014) Chart 18
45%
“Between 60 and 70 doctors and a few
Number of GPs and specialist doctors
150,000 – 175,000
new hospital with more than 200 beds,” 35%
notes Romeo Lledo from Siloam. “Most 30%
150,000 30%
of our GPs are full-time employees while
25%
specialists are part-timers, as they are 21%
allowed [under Indonesian law] to work 100,000 20%
78,597 81,131
for up to three hospitals,” he adds. 64,697 15%
49,746
81,131
50,000 10%
The shortage of 500,000 hospital beds
3% 5%
translates into a need for between
150,000 and 175,000 additional doctors 0 0%
2011 2012 2013 Apr–14 Future need
in the next few years (see Chart 18).14
Siloam intends to help reduce this General practitioners (GPs) Specialist doctors Year-on-year-growth of total doctors
shortage by planning to have 40 fully
Source: Ministry of Health (see Appendix H); Future need: EY rough estimate
equipped hospitals by 2017.
14 The shortage of 500,000 beds is a rough estimate of selected market players we spoke to.
If taking the bed-to-population ratio of Indonesia into account (2015) and compare it to the
average of South East Asia (2012), this would translate into a shortage of circa 840,000 beds.
52 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Tips to attract and retain physicians
Joyce Handajani, Chief Financial Officer at Mitra Keluarga, offers advice on how
hospitals can attract and retain talented physicians — particularly specialists:
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 53
Bridging the gaps: challenges and private support
54 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“Other than maternity hospitals, foreign
investors can hold up to 67% of shares in
specialist hospitals.”
Thomas Wirtz, EY Indonesia
Health care investment regulations: the negative investment list (2013 and 2014) Table 4
2013 2014
Business/hospital
1. Foreigners Anywhere
management service
Specialist hospital
3. Foreigners Anywhere
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 55
VI. Hospital operators
in Indonesia
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 57
Hospital operators in Indonesia
As discussed above, the majority of private hospitals will be beneficial for 40,305
23,546
hospitals in Indonesia are classified as public patients as Ministry of Health
public (70%), with the remaining being Regulation No. 56/2014 requires private
CAGR = 24%
private hospitals (30%). hospitals to reserve at least 20% of their
226,522
beds for public patients (Class III). 198,068
147,031
Around 67% of private hospitals offer However, even though the Ministry of
general services while 33% of private Health monitors compliance with this
hospitals provide specialized services. requirement, in practice we understand
This contrasts with public hospitals which that often the quota is not met, as poor
are only 18% specialized (see Appendix to near-poor patients are often not aware 2011 2012 2013
I). Indonesia has an insufficient number of their rights or not confident enough to
of qualified specialists, which has visit private hospitals. Source: Ministry of Health
58 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
VI.II Selected hospital beds in Indonesia and 5% of Apart from Mitra Keluarga and
private hospital players total private hospitals (see Appendices I Mayapada, the top hospital players
and J). Table 5 sets out a selection of in Indonesia accept BPJS patients, as
statistics of publicly listed private shown in Table 5.
Of the 666 hospitals accepting private hospital players in Indonesia. There are
patients, 599 are owned by the private 73 major private hospitals in Indonesia With the exception of Mayapada,
sector. Major publicly listed players in the operated by the top 10 private players. EBITDA margin of the publicly-listed
private hospital industry include Siloam, Of these, 57% of the hospitals are located private hospitals was positive and up to
Mayapada, Mitra Keluarga and Omni, in the Greater Jakarta area (42 hospitals) 33% (EBITDA to gross revenue margin).
representing 6,354 hospital beds or as mentioned in a press release from
12.2% of the total 51,928 private Frost & Sullivan in April 2015.
Market Enterprise
# of existing Hospitals in Accepts EBITDA EV/bed
Company # beds capitalization value
hospitals development BPJS margin* (US$m)
(US$m) (US$m)
Mitra
11 7 1,647 No** 33% 2,674 2,544 1.545
Keluarga
Source: Company websites, Capital IQ, BPJS website, EBITDA margin of Siloam: management information
* EBITDA margin of Siloam, Mitra Keluarga and Omni is based on EBITDA to net revenue (after deduction of doctors’ fees).
EBITDA margin of Mayapada is based on EBITDA to gross revenue (before deduction of doctors’ fees).
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 59
Hospital operators in Indonesia
EBITDA margin trends of selected hospital players in Indonesia After years with strong EBITDA margin,
compared to Thailand and India* (2010–2014) Chart 21 Mayapada reported negative EBITDA
margin in 2013 and 2014, mainly due to
33% increased costs which offset the growth
Mitra Keluarga in revenue (see Chart 21).
Omni
28% 30%
Sahala Situmorang explains this in the
25% 23% interview in the following section.
23% Thailand
23%
19% Siloam
18% 19%
India
14%
15 Thailand: Aikchol, Bangkok Chain, Bangkok Dusit, Bumrungrad, Chiang Mai Ram,
Nonthavej, Ramkhamhaeng, Samitivej, Srivichai, Thai Nakarin, Vibhavadi.
India: Dr. Agarwal, Fortis Malar, Indraprastha, KMC, Lotus, Regency Hospital.
60 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“A private equity house I recently advised was
very surprised to see that the margin of an
Indonesian hospital they looked at was almost
50% higher than a similar hospital in India.”
Sahala Situmorang, EY Indonesia
VI.III Perspectives of a Why is the health care sector in pyramid, which is a high volume, low
transaction advisor Indonesia so attractive for investors? margin business. Patients have to queue
for a long time for BPJS services, and
I do not see much difference between once they become more affluent, they
In the following interview, Sahala the lifecycle of the health care and other often move to an improved health service
Situmorang, Partner and M&A Leader of industries. The health care sector in level that will be also crowded if more
EY Indonesia, discusses the importance Indonesia is at an early stage of its life affluent patients use the services and so
of a clear strategy before entering the cycle, with a significant imbalance forth. Hospital players who capture all
Indonesian hospital market. between demand and supply. India, levels are best placed to benefit most
a country with a large population and from UHC — therefore it makes sense for
Has the introduction of UHC changed similar health patterns compared to investors to build tandem hospitals,
the strategies of hospitals? Indonesia, is a few years ahead of serving both BPJS and private patients.
Indonesia when it comes to health care, Large players such as Siloam have the
The answer is clearly YES. If a and we are seeing large hospitals with same view on this.
government starts to spend over between 1,000 and 2,000 beds per
US$3 billion on health care (as the hospital. While India’s health care sector
Indonesian Government did), businesses is already experiencing slowing growth Pyramid of health services
want to benefit from this spending. and profitability, the sector in Indonesia and profitability Chart 22
Hospitals have started to maximize their has just begun to grow rapidly,
utilization through better roster particularly after the introduction of
management. Additionally, most of my UHC. A private equity house I recently
er
hig
hospital clients are planning to add about advised was very surprised to see that
low
he
Highly
20% to 30% bed capacity within the next the margin of an Indonesian hospital they
r
specialized
e
one to two years. Scale is important looked at was almost 50% higher than (private)
pro
lum
tab
ilit
services (private)
tie
Basic health
he
er
services (UHC)
hig
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 61
Hospital operators in Indonesia
Do you see other opportunities that I spoke to that they are eying What should a foreign
for hospitals serving BPJS patients? second-tier cities as more promising investor consider?
investment opportunities. RS Awal Bros,
Yes, with higher volumes of BPJS a large private hospital group in Doing business in Indonesia, and this
patients, hospitals need to be prepared Indonesia, also uses this strategy for includes the health care sector, requires
not just for more patients but also for expansion. There are two main reasons local knowledge and connectivity.
their accompanying relatives. In for this: first, bed occupancy is still Therefore, it is advisable for a foreign
Indonesia, due to strong family ties, low and offers potential for growth. investor to partner with a local player.
patients are typically accompanied at Second, due to lower property prices, When selecting a local partner, investors
least by one or two relatives. If I take the costs are lower and hence profitability should have a clear road map and think
example of one of my hospital clients is typically higher in second-tier cities. about how they can add value. My
with about 1,000 patients coming in and discussions with local hospital operators
out per day, this would translate into at What are the main challenges show that capital is not a major concern.
least 3,000 guests per day. These guests for hospital operators? Why? Particularly after the introduction
need services, and hospital operators of UHC, the Indonesian banking sector
have responded to this by renting out Recruiting and retaining good doctors sees health care as an attractive industry.
space for restaurant and shopping are the main challenges for hospitals. A CFO of a public hospital I recently
facilities or even developing nearby Additionally, qualified nurses are difficult talked to told me that before joining
hotels. to find and keep. Hospitals should closely the hospital, he was CFO of a mining
work with universities and vocational company. He noticed that while the
Where do you see opportunities for schools (for nurses) to attract students mining sector was favored by banks
hospitals to expand geographically? at an early stage. Grooming doctors by five years ago, health care is the “new
giving them access to quality medical darling” and bankers are “queuing up”
Patients already have reasonable access equipment helps with retention. After all, to provide funding.
to hospitals in first-tier cities. There are good doctors like to provide quality
certainly still opportunities in those diagnosis and treatment, and they want
cities, but I see from the local hospitals to be equipped for that.
62 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
result, we also need to widen our
of a supplier of distribution coverage, for example to
regions such as Sulawesi with high
medical equipment potential and increase the headcount
of our sales and after-sales teams,”
Siemens Indonesia (Siemens) is a Dr. Widananta says.
major supplier of high-end medical
equipment in Indonesia and has been in The introduction of the so called
the country for more than 15 years. e-catalogue has changed the sales
Siemens’ product lines include imaging process to public hospitals. “The
(CTs, MRIs, etc.), clinical products e-catalogue is really good because prices
(mobile x-rays, ultrasound, etc.) and for medical equipment procured by the
diagnostics (laboratories). “Siemens in Indonesian Government are negotiated
Indonesia serve imaging and clinical and agreed once and are binding across
products to the high-end segment of the Indonesia,” Dr. Widananta says. Siemens
market for medical equipment,” says Dr. has a direct sales force for its private
Stefanus Widananta, Health care Country hospital customers.
Lead for Siemens.
The key obstacle for Siemens’ customers
Given the enormous potential from the is to obtain funding for medical
expansion of BPJS hospitals, the equipment, which can cost up to US$1
company is considering to serve mid- to million per unit. Additionally, it is not
low-end product segments in the near easy to sell foreclosed medical
future. “We are thinking to offer M3 and equipment and if, then the pricing might
M4 product segments (mid- to low-end be low given that the market for used
medical equipment) in Indonesia. As a equipment is very small.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 63
VII. What EY can do
to help you achieve
your goals
64 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Market entry strategy Lead advisory
We analyze health care market opportunities, develop a We assist in assessing potential synergies within a
penetration strategy and consider related investment project, project-managing the steps, assisting with
risks with respect to entering the Indonesian health care negotiations and financial models and measuring
market through various types of transaction. transaction implications
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 65
VIII. Appendices
A: Interview with a private hospital serving private and UHC patients: Siloam 67
B: Interview with a private hospital serving private patients only: Mitra Keluarga 69
C: Regional population and GDP per capita 71
D: Health care expenditure as % of GDP (2008–2012) 71
E: UHC premium structure (2014) 72
F: Benefits covered by UHC in Indonesia, Thailand and the Philippines 72
G: Number of hospitals and beds by region (April 2015) 73
H: Number of health care professionals by type (2010–2014) 73
I: Hospital categorization in Indonesia (2013) 74
J: Hospital bed trend between public and private operators (2011–2013) 74
66 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Romeo Lledo,
Group President Director at Siloam
Appendix A
Interview with a private hospital serving private and UHC patients: Siloam
Siloam operates 20 hospitals catering to private and UHC patients and recorded gross
revenues of US$270m in 2014, making it the largest hospital operator in Indonesia.
Romeo Lledo, Group President Director at Siloam, shares his views on the
opportunities and challenges of the Indonesian health care sector.
How does the implementation Did the introduction of UHC make you reduced the number of items from over
of UHC affect health care in change your business strategy? 8,000 to 2,500 to benefit from higher
Indonesia? UHC did not change our overall business volume discounts from suppliers but also
Indonesia is an underserved health care strategy. In fact, our vision has always to improve our working capital
market with low bed and doctor ratios to been to provide accessible and affordable requirements.
the population. The implementation of world-class health care to all Indonesians.
UHC is already driving demand and will, Four years ago, well before the The operating expenses of medical
at least in the short term, worsen the introduction of UHC, we already opened equipment are sunk costs, either used or
existing supply shortage. a low-cost general hospital in Karawaci not. Therefore, we maximize the
(Tangerang) catering to near-poor and utilization of equipment for UHC patients,
Siloam Hospitals Group is supportive poor patients, both public and private. at the reimbursement price of BPJS.
of UHC, since it aligns with our vision Since the introduction of UHC, we have
to cater to all Indonesians regardless of developed a business model for our UHC The procurement of medical equipment
their income. At the moment our target is business that, at the economy of scale of is centralized at our group, and we work
for 18 out of our total 20 hospitals to 300 beds, generates EBITDA to gross with only a few suppliers to achieve
cater to UHC patients, however, these operating revenue (reimbursement price better prices through higher volumes.
contribute only 6% to 8% to our group’s of BPJS) margin of 15%. For instance, we have purchase
total revenue and it is expected to reach agreements with Philips and GE Health
10% to 12% going forward. What did you do differently after care for medical diagnostic equipment
the introduction of UHC? such as MRI, CTs and x-ray machines and
UHC rates are very low and often As mentioned earlier, the key factor is with Mindray for operating theatre
do not cover cost, particularly for cost management involving the proper equipment.
complicated cases. Therefore, to run a allocation of equipment utilization and
successfull UHC business, the key is case doctor participation on the program that What are your future development
management and proper allocations is unique to Siloam and is important to plans?
of working capital. Reimbursing costs achieve our profitability targets. Based on our study of 134 Indonesian
from BPJS can be sometimes lengthy cities, we have identified 79 cities for our
due to the complicated process, but the We are also focusing on managing expansion plan with 46 hospital projects
Indonesian Government has significantly our direct costs, of which 90% relate to in the pipeline. Our aim is to build 40
improved the payment process recently. consumables and drugs. We have hospitals outside of metropolitan Jakarta
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 67
Appendices
and five additional hospitals in Jakarta “hub and spoke” strategy. During How do you see the health care sector
by the end of 2017. We think that these emergencies, patients in smaller cities by 2019, the deadline by which all
additions will still be far from sufficient to can have access to specialist doctors Indonesians are covered by UHC?
meet the demand for hospital beds. One from our hospital “hubs” in Jakarta with By 2019, as planned by the (Indonesian)
of our initiatives for 2015 is to introduce centers of excellence. This shows that IT Government, all Indonesian will be
Siloam Express; these are mini infrastructure is becoming more covered by UHC. I make the following
emergency hospitals with approximately important to ensure that all patients can three predictions: 1. Even after 2019, the
40 beds and the capability to stabilize expect the same high standards at all of business of private hospitals will not
patients in trauma cases, located at our hospitals and at the same time change because benefits such as free-
Lippo Malls (associated with Siloam). managing costs for costly specialists. choice of doctors, reduced waiting times
and one-bed rooms will continue to draw
Do you think the development costs What else do you think are the benefits patients to private hospitals. 2. UHC will
for a hospital in remote areas are lower of modern IT infrastructure? increase its network and volume. The
than in Jakarta? Modern IT infrastructure helps to reduce Indonesian Government will change its
No, I don’t think so. Land acquisition costs but also improves convenience for trajectory to mitigate the supply-demand
costs in remote areas might be lower patients. For example, doctor gap and mandate all private hospitals to
than in Jakarta but are often offset by appointments can be made online. participate in UHC. President Jokowi
higher costs to construct the hospital (Joko Widodo) has announced these
building, which requires specific know- Do you think the AEC can help to plans about two months ago. 3. The
how that is mostly not available outside address the shortage in doctors? growth will continue in volume and
of Jakarta. In the short to medium term I do not revenue because the significant supply-
expect that Indonesia will open up for demand gap will continue for the next
What are the main challenges Siloam foreign doctors. In the long-term, two to three decades.
faces in mitigating the shortage in Indonesia will eventually open medical
supply? practice for foreigners in the ASEAN Do you think UHC is financially
The development of a new hospital takes region due to the implementation of the sustainable?
approximately three years in Indonesia, AEC. Yes. The Indonesian Government is fully
due to a lengthy process, which requires committed to the UHC program. Also,
approximately 36 different licenses from How do you recruit and develop talent the current health care spending of
various national, regional and city to support your expansion plans? US$107 per capita is way below its peers
authorities. Finding strong and experienced hospital in the region, thus there is a lot room for
managers is not easy. Therefore, Siloam the Indonesian Government to fund from
In addition, the quality of nurses and develops its own talent through the so its treasury.
other human resources, such as called MA (Management Associates)
technicians and lab workers, is a program, i.e. young GPs undergo an
challenge, as there is a national shortage. 18-months program in finance operations
while high performing colleagues with a
How do you deal with a severe finance background spend time at medical
shortage of specialists in remote areas operations and being exposed to clinical
or smaller cities? governance. I think a healthy mix of
What we are trying to do is to balance the colleagues with a medical and finance
scarcity of specialists in smaller cities by background are ideal to support the
introducing telemedicine through our expansion of our hospital group.
68 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Joyce Handajani,
Chief Financial Officer at Mitra Keluarga
Appendix B
Did the introduction of UHC make Our business was also negatively affected consistently lower compared to a national
you change your business strategy? by patients who were no longer covered average of 4.4 days.
Our business strategy did not change by private insurance because their
as a result of the introduction of UHC. employer, mostly smaller companies, What are your future development
We focus on private patients and will reduced health insurance benefits to plans?
continue to do so going forward, unless BPJS Health. I believe that this trend is Our expansion is clearly focused on
the regulatory environment changes. short lived for two reasons: firstly, Greater Jakarta and Surabaya because
Due to the specific demographic situation patients are currently trying out the these areas provide a better supply of
in one of our hospitals in Java with lower benefits of BPJS Health but will probably doctors. In Jakarta 0.88 doctors serve
incomes compared to Jakarta, we tried realize sooner or later the benefits 1,000 patients compared to a ratio of
to open a wing of our hospital for BPJS offered by private hospitals, namely 0.3 in rural areas. On the demand side,
patients there. However, BPJS Health did higher quality services and shorter the average GDP per capita is higher in
not support this and required us to open waiting times. Secondly, employers will Greater Jakarta and Surabaya than in
the entire hospital for BPJS patients, eventually weigh up the benefits of lower other regions.
which we did not want. costs for health benefits against higher
costs from reduced productivity of their What do you think about President
About 18 months later, how has employees. An out-patient coming to one Joko Widodo’s recent statement that
UHC affected your business? of our hospitals spends around 3 hours all private hospitals will have to accept
In the first quarter 2015, year-on-year, compared to much longer waiting times, BPJS patients in the future; otherwise
we have seen a decline in the number of sometimes days, at BPJS facilities. he would revoke their business licenses?
in-patients by 1.75% while the number of We acknowledge President Joko
out-patient visits increased by 3%. The How do you address the decline in Widodo’s plans and will of course comply.
decline in the number of in-patients was the number of patients? In fact, by law, private hospitals are
caused by patients who, for example, We are expanding our diagnostics already required to accept emergency
previously used our maternity services services to compensate for the decline in cases. The mandatory acceptance of
and moved to BPJS Health to save costs patient numbers. We believe we are BPJS patients by private hospitals will
and also privately insured patients with capable to offer our patients with significantly drive costs though, because
expensive treatments such as dialysis efficient yet quality health services. Our if health services are offered they are
which do not underlie ceilings under BPJS average length of patient stays stood at also used. I have heard of a patient with
Health as compared to private insurance. 3.6 days in 2014, which has been claims of more than US$1 million.
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 69
IX. Appendices
What is the most critical thing the doctor graduates. GPs can graduate at difficult task of managing a hospital.
Indonesian Government can do for private universities but graduation of This has also the benefit that they know
your hospital group? specialists is limited to state universities. the hospital operations and are better
We would like to offer COB to our As part of the credentialing process, accepted by their practicing peers at the
patients but a regulation on the before a new doctor can practice, he or hospital.
implementation of COB has yet to she will require recommendations from
be issued and it is unclear when this local or regional collegiums of doctors. What is your advice to foreign
will happen. It is important that the Not just foreigners but also doctors from investors entering the hospital sector
discussions between BPJS Health and other regions are affected by this. in Indonesia?
the private insurance industry are Foreign investors need to understand
moving forward, because it will allow Where do you see your profitability that things in the Indonesian hospital
us to participate in UHC. The critical in the next five years as compared sector are different from other markets.
discussion point is that BPJS Health to now? For example, local pharmaceutical
wants to avoid that major financial risks, I see the profitability of Mitra Keluarga players are very strong here. Therefore,
for example resulting from the costly to remain stable in the next five years, existing procurement agreements with
treatment of cancer patients, will however, this requires a strict focus on international players might not be useful.
eventually remain with BPJS Health and cost management. Apart from the costs Foreign investors should build business
are not fairly shared with private insurers for doctors, we need to manage the cases that reflect local conditions and
who typically impose a ceiling on costs procurement of pharmaceuticals. challenges which require in-depth
while BPJS Health has no ceiling. Between 45% and 50% of our group’s knowledge of the local conditions.
total revenues are generated from
What is the key challenge of your pharmaceuticals. Therefore, we need to
business? be good at managing the corresponding
The supply of doctors is the biggest costs.
challenge for our business.
How do you think management can
Do you think the AEC can help to make a difference to the profitability of
address the shortage of doctors? a hospital?
I don’t think that the AEC can help to We are in a lucky position that our
address the shortage of doctors, at least management has decades of experience
not in the medium term. More important in the hospital sector. I think that GPs
is that the Indonesian Government with hospital management skills and
focuses on increasing the number of experience are best placed for the
70 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Appendix C
Regional population and GDP per capita (2015F)
Appendix D
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 71
Appendices
Appendix E
Appendix F
72 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
Number of hospitals and beds by region (April 2015)
Appendix G
Maluku 45 3,774
Appendix H
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 73
Appendices
Hospital categorization in Indonesia (2013)
Appendix I
Appendix J
Imagesource
iStockphoto, Shutterstock
74 | Ripe for investment: the Indonesian health care industry post introduction of universal health coverage
“Investors can add value by bringing in
management expertise, which is sorely
lacking in this sector. With better management,
hospitals can benefit from economies of
scale, which could be translated into better
compensation for doctors and other medical
personnel. The collegium of local doctors also
needs to open up to welcome new talent.”
Thomas Wirtz, EY Indonesia
Ripe for investment: the Indonesian health care industry post introduction of universal health coverage | 75
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