Survival of the Fittest
Asiaweek, August 1999
Asian hospitals fight it out for survival
Think of it as a home in Florida, only better value. Thailand’s private hospitals are now trying to sell retirement colonies with tie-ups to a modern medical service. The prize clientele, of course, is Japanese. The idea will be a tough sell. Japan spends billions on health care benefits for its elderly, but within the country. Changing that set-up will require complex negotiations between governments. Thailand has tried to make things easier. Instead of the usual three or six-month pass, Japanese retirees can now get special visas that can be renewed annually, if they deposit at least $22,000 with a local bank. “It would be cheaper for Japan to provide health care for its elderly in Thailand and cheaper for the retirees to set up house here,” says Curtis Schroeder, CEO of the Bumrungrad Hospital in Bangkok. “And private hospitals would benefit as well.”
Laid low by the Asian crisis, hospitals in the region are struggling for revenues and profit. Thailand’s hospitals are now trying to attract patients from countries that lack advanced facilities. So, when Thai trade officials went on a road show to Indochina in March, the delegation included representatives from seven private hospitals. The services being promoted: checkups, heart and cosmetic surgery and that Bangkok specialty—sex-change operations. Bumrungrad made an even earlier start. It set up offices in Bangladesh, Nepal and Vietnam a year ago. Foreigners now make up about 28% of its patients, compared to 11% before the crisis.
Malaysian operators hope to lure such customers too. Just as the battered baht has made some services more attractive, so has the reduced ringgit. “Hospitals in Penang and Malacca, in particular, are benefiting,” says Dr. Ridzwan Bakar of the Association of Private Hospitals. “Patients from Sumatra (Indonesia) find it more cost-effective to travel to Malaysia than to Singapore for their medical care.”
Even well-toned holiday-makers might be tempted: sun, sea, sand—and a head-to-toe checkup. After years of wooing foreigners with beaches, temples, nightlife and cuisine, the Thai government has teamed up with private hospitals and travel agents to dispense “healthy holidays.” That’s why Bangkok General Hospital has not only recruited Japanese-speaking nurses, it has also linked up with a biomedical laboratory in Japan to speed up the processing of customers’ insurance claims.
But it may be a while before operators can profit from that strategy. The harsh reality is still a substantially contracted customer base. According to Singapore based consultancy Satoru Shahi, the number of foreign patients in the Lion City fell by more than half at the height of the crisis. At one point, they stopped coming altogether, recalls Dr. Lim Cheok Peng, managing director of the Parkway Group. The three acute-care hospitals it runs account for about 58% of the private beds in Singapore (and 75% of revenue from the sector). On the domestic side, middle-class patients deserted Parkway centers for cheaper state facilities. Others delayed elective procedures or chose outpatient surgery. Occupancy at Parkway dropped 20%. The operator had to reduce bed rates, in some cases by as much as 40%, from $94 to $59 a day.
In Kuala Lumpur, engineer Ananda K., as he prefers to be known, benefited from a similar adjustment. When his mother’s eyesight began failing due to diabetes, her specialist at a private hospital urged a four-day stay for observation. That meant bills of $66 per night plus special nursing. Ananda normally “would not have hesitated.” But he was worried about hanging on to his job. “I didn’t want to splurge if I could help it,” he says. The alternative: a long wait to get into a crowded government ward. What to do? As it turned out, the private hospital was offering a 30% discount on room rates, and his specialist devised a two-day stint for his mother. “I could just manage it,” says Ananda.
Cutbacks on benefits have had their effect. At the KPJ group, which runs six hospitals in the Klang Valley surrounding Kuala Lumpur, some 40% of patients are corporate clients. Since the crisis, only “a certain category” of personnel are allowed to consult specialists, says regional general manager Aminudin Dawam. Other staff members may be asked to see general practitioners instead. At some companies, junior employees are given time off to go to government clinics, which charge nominal fees. The result: a 20%-30% drop in hospital occupancy rates. Costs, however, went up. Weak currencies made maintenance, medical supplies and equipment (mostly imported) much more expensive.
During the early 1990s, health care looked like a hot business. Facilities that relied more on polished marble foyers than on medical excellence spread like a bad rash. But the financial crunch is forcing a shakeout. In Malaysia, three hospital projects in the Klang Valley have been shelved. Three existing facilities have been offered for sale or takeover. More and more “stand-alone” hospitals are merging with larger groups to survive, says Ridzwan.
Thai facilities, many of which were set up with foreign-currency loans, had to restructure debts. Operators switched from imported to locally made drugs, cut salaries and laid off staff. That probably won’t be enough. According to government forecasts, two-thirds of Thailand’s 400 private hospitals will likely fold over the next few years. “In retrospect, I think expanding so rapidly was a mistake, but we did not foresee the collapse of the economy,” admits Dr. Surapong Ambhanwong, medical director of the Phyathai Hospital in Bangkok.
Hospitals clutching for new revenue sources have signed up with Thai-land’s social security system. The returns are slim. Under the plan, the government pays operators an annual fee of $24-$27 per person they treat, for anything from ordinary flu to dialysis. The contribution of individual Thais: 1.5% of their salaries. That’s a terrific deal, right? Maybe not. The authorities are receiving more than 1000 complaints each year. Common gripes: inferior treatment, substandard drugs, demands for additional payment and negligence.
Schroeder, whose Bumrungrad Hospital did not join the scheme, is not surprised. “It is just not possible for any hospital to provide adequate health care for 1000 baht ($27) a year,” he says. “The only way it can be viable is if hospitals abuse the scheme, and that’s what is happening.” Not so, other operators insist. “It is possible to provide good care and turn a profit if you are located near a factory, have a large number of members and manage your system properly,” says Dr. Pongsak Viddayakorn of Bangkok General, one of Thailand’s largest hospital chains.
Lean times in Singapore have fostered changes in administration. Aided by better medical technology and streamlined operations, hospitals are shifting toward more outpatient treatment. Industry consultant Gurinder Shahi believes there will be more day surgeries than inpatient operations by 2004. Parkway chief Lim has it worked out: “If we can do a day case instead of a three-day stay, we would be more efficient in terms of turnaround time.” Anticipating the trend, the group is offering home nursing after acute treatment – blood transfusions in the comfort of your home, for instance. “Teams of nurses and doctors can visit patients, saving the cost of hospital beds,” Lim explains.
Parkway can’t afford to get complacent. Competition is getting even tougher. A local branch of Johns Hopkins, the renowned U.S. institutions, began seeing patients in April. Another rival: a hospital operated by the Raffles Medical Group, which will open next year. With its network of 40 primary-care clinics on the island, Raffles has the advantage of a ready patient pool. “It will be able to channel its managed-care clients to its own hospital,” says Shahi. Parkway’s counteroffensive: setting up tiny clinics inside drug stores in a joint venture with the Guardian Pharmacy chain.
What does this mean for the patients? Malaysia’s Ridzwan insists “the quality of care remains unaffected.” Other experts reckon, however, that in the short run, complaints of poor service and practices are likely to swell as hospitals try to cut costs. Despite new laws to control private hospitals. Dr. Preeda Tae-arak of the Health Intelligence Unit in Thailand believes standards are “suffering because of cutthroat competition.” Some players got into private health-care before the crisis “only to get burnt,” notes Peter Cunningham of Satoru Shahi. Of eight newcomers in Singapore, seven have now quit the business. “They had no experience and probably had no business trying their hand in the first place,” says Cunningham. “This area may sound sexy, but it really needs specialized knowledge.” Operators throughout the region may have to rope in foreign investors and expertise.
Things may be looking up, however. In Singapore, Shahi cites the needs of an aging population, a return of foreign patients – and recovery – as plus factors. Occupancy is back to 75% at Bangkok General, and Bumrungrad expects earnings to be about 15% higher than last year. Patients will expect healthier balance sheets to translate into better care too.