Private hospitals are capitalising on strained Western health services and rising Asian incomes.

"Specially for you” reads an advertisement by a Singaporean hospital in one of Cambodia’s national English-language newspapers. It is illustrated with a present box and offers a complimentary first consultation with a specialist and a 10% discount on facilities fees. 

Such a commercial approach to healthcare is unusual in parts of the world (such as Europe) that enjoy a publicly funded healthcare system. However in Southeast Asia, where such infrastructure is often nonexistent or poorly developed at best, private hospitals driven by market forces dominate the industry.

Over the last decade, the region has witnessed a meteoric rise in private hospital chains catering to an increasingly affluent and aging middle class. Once predominantly located in Malaysia, Singapore and Thailand, the phenomenon of medical tourism has encouraged chains to expand to other countries such as Indonesia and Vietnam.

The number of foreign patients at Thai private hospitals almost tripled from 550,000 in 2001 to 1.5 million in 2009, according to the Kasikorn Research Centre and Thailand’s Department of Health Service Support. Malaysia enjoyed similar growth between 2001 and 2006.

Several factors have contributed to the astonishing expansion: improved infrastructure, logistics and cost efficiency; upgraded equipment and healthcare standards; and the return of doctors trained abroad.

While the quality of healthcare services on offer is improving, changing lifestyles in Southeast Asia have generated higher demand. The increasing presence of chronic diseases commonly found in the West, such as diabetes, cancer and cardiovascular diseases, coupled with improved access to information online and low-cost flights, have fuelled medical tourism within and to the region.

Whereas patients have typically come from middle-income Southeast Asian countries, Eastern Europe and the Middle East, there is increasing interest from lesser-developed countries such as Bangladesh, Cambodia and Myanmar.

“Our foray into the medical travel market started 14 years ago, but our first major boom occurred after 9/11,” says Kenneth Mays, senior director of marketing and business development at Bangkok’s Bumrungrad International. Of the 980,000 visits by patients from 190 countries this hospital receives annually, 400,000 were international medical tourists, a quarter of which are from the Gulf states. “It became more complicated for citizens from this region to get visas to the United States, so they looked for alternatives. Patients started calling us ‘the American hospital in Bangkok’.” Since then the stock exchange-listed hospital has continued to grow, generating $325m in revenue in 2010.

In recent years, the number of patients coming from Western countries has steadily increased as strained healthcare systems have led to rising in- and outpatient costs and long wait times for hospital admission. For the 25,000 American and 25,000 Europeans who visited Bumrungrad last year, medical treatment is cheaper in Southeast Asia than at home.

Deep pockets

This trend has been widely encouraged by some governments who see the development of a state-of-the-art healthcare industry as a way to raise their brand profile abroad, increase tourism revenues and build a competent medical labour force. Thailand has a five-year plan to generate $13.3 billion from foreign patients by 2014, while Malaysia has made healthcare one of its 12 main economic areas slated to double national income per head over the next ten years.

Medical tourism heavyweight Singapore has long been betting on this market.

In 2003 it launched SingaporeMedicine, an agency designed to promote Singapore’s position as a medical hub. The fact it is supported by the Ministry of Health, the economic development board, the tourism ministry as well as the country’s external trade agency, International Enterprise, speaks volumes of the perceived potential of medical tourism in Singapore.

And hospitals are proving to be big business in the region. Thailand’s largest network of private hospitals, Bangkok Dusit Medical Services, saw its net profit rise by 33% in 2010 to $75.4m. Singapore’s Raffles Medical, which has 74 clinics in Singapore plus medical centres in Hong Kong and Shanghai, posted a profit after tax of $35.5m last year, a growth of 20%.

Such figures have whetted the appetite of investors, including some of the most powerful private-equity companies in the world. Lombard, the specialist Southeast Asian investment fund, paid about $14m in 2008 to become the largest shareholder of Professional Services, the owner-operator of The Medical City, one of the main private-care hospitals and medical-clinic managers in the Philippines. Two years later, two American giants, TPG and the Carlyle Group, acquired Healthscope, one of Australia’s largest private hospital firms with operations in Malaysia, Singapore and Vietnam, for $1.7 billion while Malaysia’s state-owned fund Khazanah Nasional spent $2.6 billion to snap up Parkway, a Singapore-based chain operating 16 hospitals and patient-assistance centres across Southeast Asia and beyond.

Vietnam seems to be Southeast Asia’s next hub. Last August, Fortis Healthcare, a Singaporean-based holding company owned by India’s billionaire Singh brothers, bought a 65% stake in Vietnam’s Hoan My Medical Corp for $64m. The Parkway group plans to open a 319-bed hospital in Ho Chi Minh City in 2013.

However, even the region’s booming medical tourism industry could not escape the world financial crisis unscathed. “After 2008, one would think we would have got more patients because our fees are significantly lower, but that didn’t happen,” says Bumrungrad’s Mays. “We suffered a short-term loss then as foreign patients were deterred because of the flight costs.”

In the longer term, he is optimistic Bumrungrad’s cheaper rates will lure an increasing number of Western patients to the region. “Populations in the West are getting older. At the same time, the situation is more and more difficult for indebted governments who want to change their healthcare system to save money; meaning patients in these countries will have to pay more. We are now starting to see more patients from European countries like the Netherlands,” he says, adding that retired Japanese and Canadians are also on his potential patient list.

“Since the crisis, operators are being more cautious in the investments they make,” says Rhenu Bhuller, vice president of Healthcare APAC at consultancy firm Frost & Sullivan Singapore. “But this is just a shift of timeline. In the longer term, the gap between the growing demand and the number of available beds in Asia will have to be filled in,” she says, suggesting the sector has a promising future.

Crowded house

Amazing returns and a positive outlook doesn’t mean hospitals in Southeast Asia have an easy road ahead, however. Increasing competition from Japan, South Korea and Taiwan means more countries are vying for a slice of the medical tourism industry.

“In 2005, you only had 15 hospitals in Asia accredited by JCI [Joint Commission International, the international division of the organisation that accredits healthcare providers in the US]. Today you have 110,” says Bhuller. She notes that as the market becomes increasingly crowded, countries have started to position themselves more distinctively in the market, with hospitals in Japan and Thailand carving a reputation for a high standard of care and aesthetic services while Singapore focuses on advanced surgeries.

There are other ways in which hospitals can differentiate themselves from the rest, says Bhuller. The use of high technology through robotic surgery is one such example, as is specialising in minimal invasive surgeries, common in Singaporean hospitals. Some opt for ‘holistic healthcare’, which includes preventive and well-being services, while others bet on high-end design and service to attract wealthy patients, just like a five-star hotel would do.

Mays sees another consequence of increased competition on hospitals’ plans. “The more obvious niche strategy is to target a few countries in close proximity. Japanese hospitals are looking at Russia, while the Taiwanese target the Chinese market,” he explains, stressing that it also takes time and resources to train staff on foreign languages and culture.

As more players join the market, the competition for a skilled labour force is also likely to increase, pushing salaries and training costs up. Bhuller expects newcomers to face a labour shortage and therefore try to set up collaboration with universities and nursing schools and use more technology and automation in the procedures. “This will remain a very competitive industry,” she says. “Groups who are consolidated with investment in different countries have a better chance because they can balance the less performing markets with the high performing ones.”

Happy few

According to the World Health Organisation, private expenditures account for 58.7% of total health expenditure in the region. That is 8% more than in Africa and the Americas and 35% more than in Europe. Regardless of the economic gain brought by an efficient industry, a growing concern is that a prominent private sector will only exacerbate the shortage of competent medical workforces available to the larger parts of the population in the poorest countries, impacting negatively on their development.

“That is a justified concern, but one should not ignore that by developing a competitive healthcare industry, we are able to avoid a brain drain and to attract doctors who otherwise would be working in Western countries,” says Mays.

Yet in many countries, quality healthcare remains limited to the wealthy few, reflecting the widening gap between rich and poor and between cities and rural areas in Asian societies. In Vietnam, for example, 8.1% of households spend more than 20% of their total household expenditure on health and 3.7% are impoverished as a direct result of their high healthcare spending, according to the United Nations Development Programme.

To ensure the poor benefit from the healthcare boom,  one way forward would be for governments to prioritise public healthcare plans and innovative public-private partnerships and enforce regulations. “Some governments are now giving more flexibility to specialists who can work in both the private and the public sectors at the same time. This benefits everybody, including the doctors themselves,” explains Bhuller. “In some countries, the best physicians are to be found in the public sector because they are faced every day with a wider range of pathologies. In private hospitals, they lose this expertise.”