Investing in Indonesia's private sector health care

With Indonesia’s new universal health care programme expected to put pressure on the public hospital system, investors are looking to develop private sector medical facilities as an alternative for the growing middle class.

Under the government scheme, all Indonesians will have some form of health coverage by 2019, up from around 50% at present. The system will provide insurance to millions who lack access to employer-sponsored plans and cannot afford private coverage, but it is also likely to stretch capacity at state hospitals and clinics. Initial trials of the comprehensive scheme in Jakarta saw sharp increases in the numbers of patients attending government facilities, many of whom were visiting the hospital for the first time.

Indonesia has bed-to-population ratio of 6.3 per 10,000, a figure that Dr Grace Frelita, vice-chairman of the Strategic Health Care Committee for the Indonesian Chamber of Commerce and Industry, told OBG was “extremely low”. The government would like to see this raised to 10 by 2014, although this would still leave Indonesia well short of the global average of 30.

The rise in demand for public services is expected to push more affluent Indonesians toward private sector medical care, seeking either faster or higher quality service.

This business opportunity has not gone unnoticed. At the end of last year, Lippo Karawaci, one of Indonesia’s largest real estate developers, announced it was planning new hospitals in a number of regional centres, such as Surabaya, Semarang and Kalimantan. The move was an acknowledgement of the shift in demographics and wealth in Indonesia, said the company’s president director, Ketut Budi Wijaya.

“Some of these cities will see growth rates higher than Jakarta, and that will lead to urbanisation,” Wijaya told Bloomberg in late December last year. “Middle class growth is high and they’re looking for a better service of health care. Health care is the most under-invested industry in Indonesia.”

It is not just local health service providers looking to bridge the investment gap. In mid-May, Lippo announced it had sold one of its existing facilities, the Siloam Hospital Bali in Badung, to the First Real Estate Investment Trust of Singapore. Analysts have said the $77.1m generated by the sale could be used by Lippo to fund some of its other proposed hospital developments elsewhere.

The Bali acquisition was the second by the Singaporean concern in a matter of weeks, with First Real Estate having also been given approval to buy Siloam Hospital TB Simatupang for $73.8m, a deal it announced in March.

The twin sales suggest there is growing overseas interest in the local health care industry, with investors looking to cash in on a rising demand for specialised medical services. They may also be eyeing the 1.5m Indonesians who travel outside the country each year for treatment, spending an estimated $11.5bn, according to data from the government and industry groups.

Regional players that offer services to Indonesians abroad have accordingly turned their attention to investment opportunities in the local market. In late May, Dr Lim Cheok Peng, the managing director of Malaysian-based operator IHH Healthcare, said the corporation was considering further expansion into Indonesia as part of its strategy to sustain growth.

Hospitals are not the only health sector players that are predicted to see continued expansion in the coming years. Shares of Jakarta-based Kalbe Farma, the region’s largest pharmaceutical firm, had jumped 32% this year as of mid-July, far outperforming the 8.3% achieved by the Jakarta Stock Exchange composite index. Adrian Joezer, an analyst at a local securities firm, attributed this rise to the government’s universal health care programme, which has boosted sentiment in the industry. The pharmaceuticals concern has also announced plans to build up to 25 clinics annually in Jakarta, an investment worth around $2m a year through to 2018.

With Indonesia’s private health care market growing and services likely to be in greater demand as pressure on the public sector increases, earning potential and investments are set to rise, with private care providers positioning themselves to tap into an increasingly affluent and quality-oriented market.