Healthy contracts: The private sector’s share of services and facilities is growing

Private hospitals are big business in Malaysia. There are around 220 individual facilities across the country, nine of which have been granted Joint Commission International (JCI) accreditation, a recognised world standard. Domestically, private health care service providers are frequented by 40% of the population that subscribes to health insurance policies.

CONCENTRATED CLUSTERS: Geographically, private hospitals are concentrated in urban areas, but also far more present in Peninsular Malaysia than in Borneo, where only 10% of them operate. This explains why Penang accounts for nearly half of all foreign patients in the country. The private hospital market is dominated by three large firms: Kumpulan Perubatan Johor (KPJ), IHH Healthcare and Columbia Asia. There are many independently managed hospitals and non-profit institutions, but consolidation has been the story in this sphere, with the biggest three slowly buying out smaller competitors or driving them to niche markets.

The largest Malaysian-owned private operators in the hospital sector are IHH Healthcare and KPJ. KPJ hospital chain is owned by the state government of Johor, operates 21 hospitals and accounts for 22% of Malaysia’s domestic private health care services market, where its profits grew 20% in 2011. The chain is planning to spend RM2bn ($645m) to expand its hospitals and building six new ones over the next five years. It will not shoulder the entire burden. KPJ recently announced it would build its second hospital in Sarawak in a jointventure with Naim Holdings, which is to provide real estate and construction services. Building the 100-bed facility is projected to cost RM70m ($22.6m) and will be leased by the joint venture to KPJ once operational.

Recently floated on both the Kuala Lumpur and Singapore stock exchanges, IHH Healthcare is majority-owned by Khazanah Nasional, the state’s sovereign wealth fund, and operates 30 facilities in four countries. The firm’s hospital brands in Malaysia include Pantai and Gleneagles, which were acquired through its take-over of the Singaporean-owned Parkway. The Gleneagles Penang facility is being upgraded and expanded: a new 19-storey wing will bring capacity to 400 beds when it opens. The KL flagship is also set for an expansion, and two hospitals are under construction under the Gleneagles brand, as well as one Pentai.

HOSPITAL SUPPORT SERVICES: Since they were privatised in 1996, hospital support services (HSS) in public health facilities, comprising clinical waste, linen and laundry, facilities engineering, biomedical engineering and cleansing management services, have been split between three providers: Faber Group’s wholly owned subsidiary Faber Mediserve, Pantai Medivest and Radicare. These providers also operate in the private sector, but their public sector concessions constitute a vital part of their business plans.

The original contracts were for 15 years, and Faber, the first signatory and largest operator, was given a six-month extension just before the due date in late 2011.

None but the three original HSS firms were contacted to renew the latest 10-year contracts, which were signed in early 2012. Revenues per annum are not fixed but depend on how much actual volume is handled by each respective company. When activity grows due to increasing numbers of beds per hospital or the building of extensions in public hospitals, the companies’ revenue rises accordingly. In 2011 government HSS concessions generated RM1.1bn ($355m) for the three firms combined. Faber accounted for half of the market share; Radicare and Pantai Medivest accounted for 30% and 20% of revenue, respectively.

Faber Mediserve provides HSS for over 80 government hospitals in the states of Perak, Kedah, Penang, Perlis, Sabah and Sarawak, as well as 400 other private and public health care institutions. The group is one of only two large Malaysian health sector businesses to be listed on the country’s stock exchange. The group mainly consists of HSS Faber Mediserve and of its property development business, which made up 16% of the group’s revenue in 2011, although this proportion is subject to large variations. Khazanah Nasional is the largest single stakeholder of Faber Group stock (34.3%). Faber Mediserve is becoming a trusted brand for HSS beyond Malaysia, exporting its services to hospitals in India and the United Arab Emirates. The other two HSS providers, Pantai Medivest and Radicare, operate in Kuala Lumpur and the south of the Malay peninsula. Pantai Medivest, which is also owned by Khazanah Nasional, has HSS branches in Indonesia and also provides services to hotels and factories.

SIZE ISN’T EVERYTHING: Smaller private providers tend to compete in the high-end and specialised corners of the market. For instance, Sime Darby Healthcare Group, part of the Malaysia-based Sime Darby multinational conglomerate, comprises five entities: the flagship 393-bed tertiary care Sime Darby Medical Centre in Subang Jaya, the Sime Darby Specialist Centre Megah for outpatients and daycare, the Sime Darby Nursing and Health Sciences College, and the Ara Damansara Medical Centre.

The Sime Darby Medical Centre, Ara Damansara, is Malaysia’s first centre of excellence for cardiac, brain, spinal and joint disease. It opened in March 2012 and once fully operational, the RM240m ($77.4m) hospital will have 220 beds, 30 clinic suites, five operating theatres and two cardiovascular laboratories. The site includes a rehabilitation facility for stroke and spinal injury victims, paediatric therapy (including for children suffering from autism and learning difficulties), musculoskeletal rehabilitation, occupational therapy, hydrotherapy and speech therapy. Another Sime Darby hospital project, the 300-bed ParkCity medical centre, is due to open in 2013.

FOREIGN PATIENTS: Growth in private institutions is driven by both domestic and international demand. All health tourism in Malaysia takes place in private institutions, where prices and quality of service are increasingly recognised as very competitive. According to the Malaysian Health Care Travel Council, the number of foreign patients seeking treatment in Malaysia surged to 578,403 individuals in 2011, generating revenue of RM509.8m ($164.5m) – equivalent respectively to a 47.2% and a 34.5% rise since the previous year. Due to geographical proximity, development disparities, and cultural and linguistic factors, Indonesians account for the lion’s share (70%) of health tourists and 50% of total health tourism revenue in Malaysia.

The main policy change that may have an effect on South-east Asia’s private health care industry is the impending liberalisation of the services sector within ASEAN in 2015. Investors will be able to compete for a 70% stake in four sectors (telecommunications, tourism, aviation and health care) in Brunei, Malaysia, Indonesia, the Philippines, Singapore and Thailand.

FOREIGN CAPITAL: Ahead of the liberalisation of health services under ASEAN, Singaporean patients under the universal Medisave insurance scheme have been be able to access health care in Malaysia’s private sector since 2010. The 12 hospitals covered by the scheme are majority-owned by Singaporean investors. It was recently announced that an additional facility is being built. In late 2011 Singaporean investor Peter Lim made a $1.64bn deal with the Johor royal family to transform a 10-ha waterfront site in Johor Bahru into a combined medical centre and marina city.

Lim, whose varied portfolio also includes important stakes in everything from major football clubs to British Formula One carmaker McLaren, had bought a 32.6% stake in the Bursa Malaysia-listed biotech and fertility firm Thomson Medical Centre (TMC) Life Sciences a few months earlier. The Johor Bahru project is to include a 200-bed health care facility, clinics specialised in lifestyle-related and chronic diseases, as well as a large shopping mall and serviced apartments.

The facility is set to open in stages from 2014 to 2016 under the aegis of Bestblend, a joint venture co-owned by Lim (70%) and the Johor royal family (30%). The hospital is the priority of the project’s first phase; its construction is expected to cost $200m. TMC’s consultancy and management arm, Thomson International Health Services, has been contracted manage the completed hospital. Other global health services concerns are coming to Malaysia to fill the various niches of the private health care services market. In 2011 the 70% American-owned Columbia Asia Group made RM300m ($96.8m) in revenue from the 22 facilities it operates across Malaysia (which alone accounts for two-thirds of the total revenue), as well as India, Indonesia, and Vietnam. Peninsular Malaysia alone accounts for eight of the 10 facilities Columbia Asia currently runs in the country. The remaining 30% of the group is owned by the Malaysian government’s Employee Provident Fund. In competing with Malaysian giants KPJ and IHH-Parkway, the third-largest private health care facility operator in the country developed a different model.

The facilities built and operated by Columbia Asia are typically smaller, with less than 100 beds. Patients only stay at the hospital two days on average, allowing for a facility to generate significant turnover while keeping costs much lower than the large complexes required for highly specialised treatment and care. The group’s 11th hospital in Malaysia is set to open in 2014.