Business Development Asia LLC
South East Asian Health News
ISSUE 5, FEBRUARY 1998
FOCUS:
The Future of Managed Care in South East Asia
The Asian healthcare market is expected to reach US$360bn in value by the year 2000 and the related healthcare insurance market, currently valued at US$150m, should grow at rates of 50%-70% a year over the next ten years according to the Economist Intelligence Unit. It is this potential for revenues that has made South East Asia an attractive market for both US and Asian Managed Care Organizations (MCOs).
Managed care has long existed in a limited fashion in South East Asia, as the first Health Maintenance Organizations (HMOs) were introduced in the Philippines and Malaysia in the 1980s. HMOs developed in countries where the state medical systems left much of the population without health coverage. Managed care will still find countries with inadequacies in the state run healthcare delivery system to be the most fertile markets for expansion.
For most of the 1980s and 1990s the HMOs operating in South East Asia were home-grown initiatives, either government supported or local businesses. During the same period, US HMOs were becoming the favorites of Wall Street as they showed an ability to generate substantial profits. We expect to see an increase in the activity of Western MCOs in South East Asia in the next several years as these established companies branch out into relatively untapped markets. We also anticipate an increase in the number of local firms offering managed health plans.
Several local companies are most closely associated with managed care in South East Asia. HMI Balestier, Parkway Holdings Raffles Medical Group and Vista Health Care are the preeminent local companies, and are all Singaporean companies. Of late, however, international firms have been expanding into the region. Kaiser Permanente, the California based MCO, has allied with Raffles Medical to provide coverage in the region. Also, the US merger of Aetna Inc. and US Healthcare will combine Aetna's Asian health insurance network with US Healthcare's managed care experience. Apex Health Insurance and International Private Healthcare have recently agreed to establish a JV in Thailand to provide health insurance to the Thai market.
Indonesia took a significant step in 1997 when it passed a law allowing the private sector to develop, market and manage health insurance plans for their employees. Six large Indonesian conglomerates have already developed their own health insurance schemes, and many more are expected to be introduced in the next several months. The law was introduced in the hope that the private sector would move to develop efficient plans in an effort to control costs. As with many managed care plans in the US, the Indonesian schemes operate within a restricted network of hospitals and healthcare providers that enable the plan administrators to negotiate cost reductions for hospitalization and treatment.
Managed health plans appeal to the Asian middle class, the fastest growing demographic group in the region, because of the reduced costs compared to non-insured medical care. Also, there is a sentiment that a competitive, privately run healthcare system will help to keep aggregate healthcare costs low. South East Asian countries spend on average, 4%-5% of their GDP on healthcare. In the West this figure rises to 12% or 13%. Because of this difference, managed care has different forms and goals in Asia than in the West. Traditionally Asian patients have been more concerned with access to care than with costs. However, the recent economic and currency difficulties and the growing costs of healthcare have resulted in a greater preoccupation with the cost of care and a willingness to move to a third-party payer system.
As in the US, MCOs in Asia have had difficulty selling the idea of managed care to physicians, who typically remain wary. However there are some notable differences between the two systems. Many areas in South East Asia have a shortage of physicians relative to the US. This shortage eliminates the viability of capitation as a cost cutting tool. Under a capitated plan, a MCO contracts with a physician to provide care for its members. Physicians are paid a flat fee per patient per year, as opposed to be being reimbursed for services performed.
Healthcare spending in selected countries in 1997
Gov't spending (% of GDP) Private spending (% of GDP) OTC spending (US$ per cap) India 0.7 1.3 0.35 Indonesia 0.8 1.4 1.80 Malaysia 1.4 2.2 12.20 Singapore 1.1 2.4 21.75 S. Korea 1.8 3.6 51.50 Taiwan 4.3 1.5 40.15 Thailand 1.0 1.7 4.75 US 6.3 7.9 70.65 Source: BDA estimates and government statistics
Even in doctor rich areas, where capitation is an option, such as Singapore, the compensation for physicians has still been relatively generous. While general practitioners in Singapore are capitated under the Managed Healthcare System (MHS), a managed care plan operated by Singapore's National Trades Union Congress, has rates that are variable by patient. Unlike in the US, a physician in Singapore is better compensated for patients requiring more intensive care; and the compensation takes on a fee-for-service structure for the severely ill. The MHS is partially a trial run by the Singapore government to gauge the efficiency of HMOs and MCOs. In the late 1980's, Singapore introduced the idea of compulsory medical savings for hospitalization and healthcare called Medisave. Previously, an individual's health care costs were paid for from the Medisave account. The government has allowed individuals to pay 80% of their MHS premium from their Medisave account. Many see this as a prelude to allowing the Medisave accounts to fund premiums for a variety of managed health plans.
A consequence of the increase in managed health plans in the region will be a decline in the number of patients who seek health care outside of their own country. For example, over 3 million Indonesians currently receive their healthcare outside of Indonesia, at a cost of almost US$3bn annually. Most of this revenue goes to Singaporean hospitals and physicians. However, as managed care plans become more prevalent in the region, it is probable that cross-border visits to the doctor will be curtailed by the restrictions of the various health plans.
As the health insurance markets become more developed in the region, it is likely that dedicated healthcare service providers will surpass those developers who have traditionally viewed hospitals as akin to any other type of real estate investment. Market share will become increasingly important as the financing of healthcare changes.
In the past Asian patients have simply paid a fee for medical treatment. However, as evidenced by Indonesia's recent legislation and Singapore's MHS, managed health plans are becoming more prevalent in the region. Also, the percentage of employers offering health insurance to employees is likely to increase as individual workers become more skilled and more valuable. Healthcare providers with significant market share will be better placed to negotiate with MCOs. These providers will in turn be able to both provide high quality care and generate profits. Because of this, it is likely that the healthcare industry will consolidate rapidly in the next 24 months. The currency crisis has made it much more attractive to buy an existing healthcare facility than to build, while the trend towards managed care, coupled with new market entrants, has made consolidation a necessary next step.
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