Healthcare spending challenges

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1 solidiance Healthcare spending challenges This document has been produced by Solidiance. Copyright restrictions (including those of third parties) are to be observed. All information, views and advice are given in good faith but without legal responsibility. Whilst every effort has been made to ensure the accuracy of the information and data contained herein, Solidiance accepts no responsibility for any errors and omissions however caused. The information contained herein should not be regarded as a substitute for legal advice.

2 Advising Fortune 500 & Asian Corporates in Healthcare:

3 Solidiance s support has allowed us to move ahead in this initial and critical step in the long way for establishing Allergan s direct presence in our targeted country. Thank you and well-done to the team! Business Development Director Asia Pacific Proven Trust In Your HEALTHCARE Industry The systematic and detailed approach adopted by the Solidiance team has helped to provide an in-depth analysis for the specific businesses in the country we are interested to enter. Their findings and recommendations have helped us gain a better understanding and make strategic decisions on our business expansion plan in this specific emerging country. I am therefore happy to recommend Solidiance as a reliable partner to any company requiring research and consulting capabilities in the medical areas. Channels Manager ASEAN Solidiance have recently proven to be an excellent partner for our teams, providing reliable insights and understanding of markets we operate within across Asia. Their advice and guidance has helped both develop and refine a strategic approach to how we operate in the region and I am happy to recommend their work and capabilities. Director of Global Market and Competitive Intelligence Solidiance made sure they had a thorough understanding of our business needs and objectives, and focused on the key aspects of the Vietnam market that helped us with our market development strategies. Their analysis and recommendations provided us with clear insights into the decision of our strategic option. Managing Director Asia Pacific,

4 4 Healthcare Spending Challenges Key Points 1 In regional context Malaysia is above the emerging market s in per capital spending for healthcare but still far below a benchmark country like Singapore. High Level Observations on Healthcare in Malaysia 2 An ageing population and ongoing urbanization impacts the overall need for healthcare, the mix of healthcare requirements and the populations ability to finance its healthcare needs. Regional Trends and Local Developments impact Malaysia 3 The economy has performed sluggishly in the past years, hampered by low oil prices and lower FDI investments, better than Middle East but behind emerging markets 4 Overall healthcare spending has consistently outgrown key indicators in Malaysia by a almost twice the growth factor, following the global and regional trend. 5 Public healthcare budgets remained stable and recently picked up again but are expected to grow only slowly in the mid-term future as gov t income is constrained. 6 Private spending is expected to keep outgrowing public spending, making up for the lack in public coverage which is technically universal but full of gaps and bottlenecks. 7 The supply of private healthcare facilities is ill balanced. Since 2014 private facilities have tended to reduce capacity and may pick up only slowly. 8 The coverage by private insurance is still very low, people focus more on general savings and life insurances. No easy-to-use, micro-level models yet.

5 Healthcare Spending Challenges 5 International Comparison Malaysia is heading the healthcare expenditure per capita among emerging SEA markets Malaysia has a healthcare spending per capita at 455 USD which is one of the highest in ASEAN where the government plays an active role. Vietnam is also showing a promising start with 7% of GDP spent on healthcare Percentage of GDP on Healthcare, 2014 (%) Healthcare spending per capita, 2014, (USD) ,000 2, Vietnam Singapore Malaysia Thailand Indonesia 2,500 2,000 1,500 1, Singapore Malaysia Thailand Vietnam Indonesia Malaysia - The growth of Malaysia s healthcare expenditure which is one of the highest at 455 USD will help offset the increasing demand from its ageing population as well as the continued urbanization trends Vietnam - Vietnam s current spending reflects favorable policy reforms to advance the healthcare industry and consensus among policymakers to prioritize healthcare spending Indonesia - Indonesia ranks low for healthcare per capita among ASEAN neighbours but is picking up with the growth of the middle class and increased government spending Thailand Healthcare expenditure is similar to that of Malaysia but with a much larger population, the healthcare spending per capita is half of Malaysia s healthcare spending per capita Singapore Has the highest healthcare spending per capita 5 times of Malaysia s due to its smaller population

6 6 Healthcare Spending Challenges International Comparison Malaysia is behind the global average in supply of hospital infrastructure and doctors Despite increasing healthcare expenditure in Malaysia, the country s healthcare infrastructure still lags global averages and some of its neighboring countries Health infrastructure per 10,000 population Hospital Beds per 1,000 population Malaysia Global average Beds Physicians Nurses* *Nurses include midwifes Malaysia Thailand Singapore Global US Japan Almost 70% of the ~50,000 healthcare staff in Malaysia are serving in public hospitals but the Ministry of Health still records a shortage in healthcare staff at public hospitals. Public hospitals hold 75% share of the total number of hospital beds in the country, but trends show that private hospitals are gaining more share during the past decade. Malaysia has one doctor for every 633 people and one nurse per 333 people. 74% of doctors are serving in public hospitals and the remaining 26% are in private hospitals. In the past decade, the number of doctors in the public and private sectors increased by ~50% and ~20%, respectively. In terms of the number of nurses, there was an increase of ~40% in public sector nurses, and more than 50% increase in private sector nurses during the past decade. Source: World Bank, World Health Organization, Solidiance Research & Analysis

7 Healthcare Spending Challenges 7 Malaysia Key Indicators Evolving Economic Income Classes The middle class households in Malaysia have the highest average income in Southeast Asia, apart from Singapore MALAYSIA POPULATION PYRAMID BASED ON ANNUAL HOUSEHOLD INCOME (USD) No. of households 2015 (Mn) Household income bracket (USD) No. of households 2025(f) (Mn) 1.8 Higher Class >19, Upper Middle Class 15,600 19, Middle Class 12,000 15, Lower Middle Class 9,400-12, Lower Class <9, The average middle class income in Malaysia is ~RM4,600 and it is increasing at a rate of 8% per year from an average of ~RM3,600 in 2009 to ~RM4,600 in Middle class income in the urban areas is approximately RM5,300 while in rural areas its is only ~RM3,000. Health is the top priority of the middle class in Malaysia, followed by emergencies and housing. The cost of healthcare comes as as top concern for the middle class and being healthy is perceived as one of the life goals that are most difficult to achieve. The middle class is becoming more aware of the value of private insurance which allows increased access to private hospitals. Source: Department of Statistics Malaysia, News Articles, Solidiance Research & Analysis

8 8 Healthcare Spending Challenges Malaysia Key Indicators The global trend of ageing population among wealthier countries also affects Malaysia Malaysia Population growth to 32.4 million by 2020 with population % of age group above 65 to increase Age Group,% & Total Population, Million % 6% 7% CAGR % 69% 69% 27% 25% 24% Population 65+ Population Population % 0.1% -1.1% Highlights Decrease in population between 0-14 attributed to the decrease in birth rate in recent years Percentage of population between 15 to 64 is expected to remain constant (0.1% CAGR) The rate of population above 65 is expected to grow at 3.2% CAGR. On average life expectancy for both male and female population is estimated to keep growing Source: IMF, Malaysia Department of Statistics, Solidiance analysis

9 Healthcare Spending Challenges 9 Changes in Malaysia s Healthcare Landscape Malaysia s economy and healthcare will be impacted by the ageing population Potential Issues Possible Opportunities Burden on caregivers Diverting the old to value added work through knowledge sharing Main Issue Aging Population Percentage Increase in Malaysia Coupled with: Lack of retirement funds Unaffordable Premium Healthcare Emergency/ Traveling Issues Long Term Healthcare Insurance New technologies: Alarm systems/ Long distance medical care Over-crowded hospitals (Non-medical) In-house care/ retirement homes/ Intelligent in house checks Key Insights Senior living remains a relatively new concept to Malaysia. Presently, nursing home is the place that focuses on the final stages of care and majority are run by charitable organizations. The population who are 65 and above remain below 10% of the total population of Malaysia. A recent study shows that approximately 70,000 active 54-year old EPF contributors have an average savings of just below RM 167k in As the average Malaysian expected to live until 75, this means that for one to retire at 55 the average monthly expenses can only be at around RM 700. Source: Ministry of Health (Malaysia), Solidiance Research & Modeling

10 10 Healthcare Spending Challenges Changes in Malaysia s Healthcare Landscape Aging will lead to more mortality by noncommunicable diseases Top 3 mortality causes are diseases of the circulatory system, neoplasms, diseases of the respiratory systems Top 5 causes of Mortality in Private Hospitals hospitals, % of total diseases 4% 16% 18% 14% 4% 5% 4% 4% 4% 11% 11% 14% 13% 12% 11% 12% 13% 14% 12% 27% 26% 26% 29% 32% 25% 28% 28% 28% 29% 30% e 2017f Diseases of the circulatory system Neoplasms Diseases of the respiratory system Certain infectious & parasitic diseases Diseases of the genitourinary system Highlights Increased wealth and ageing population lead to a constant slow increase circulatory system Neoplasms are constantly rising as change in life style and urbanization increase the likelihood of cancer Spread of infectious diseases fluctuates with occasional out brakes but should overall decline Source: IMF, Malaysia Department of Statistics, Solidiance analysis

11 Healthcare Spending Challenges 11 Changes in Malaysia s Healthcare Landscape Total healthcare expenditure expected to grow to a minimum of 70 billion by 2020 Private healthcare expenditure expected to grow at a higher rate 9% CAGR Malaysia Healthcare Expenditure, Billion MYR ~9% Total Exp. Historical CAGR 6% Total Exp. Forecast CAGR ~11% Private Exp. Historical CAGR 9% Private Exp. Forecast CAGR ~8% Public Exp. Historical CAGR 3% Public Exp. Forecast CAGR e 2017f 2018f 2019f 2020f Private Expenditure Public Expenditure Key Insights Total healthcare expenditure is forecasted to grow at ~6% CAGR minimum mainly driven by private healthcare due to stable growth of GNI per capita and health insurance penetration Percentage share of private sector in healthcare expenditure is forecasted to increase from 48% in 2015 to 55% in 2020 Source: Ministry of Health (Malaysia), Solidiance Research & Modeling

12 12 Healthcare Spending Challenges Changes in Malaysia s Healthcare Landscape Malaysia s growth in health spending is not matched by its growth in health infrastructure Hospital beds is expected to grow to ~70,000 beds including hospitals, homes and medical centers in 2020 Public Hospital: Number of Beds (000 ) ~2% +2% e 2017f 2018f 2019f 2020f Private Hospital: Number of Beds (000 ) -1% Drop of 30 private hospitals in ~10% e 2017f 2018f 2019f 2020f Highlights To achieve 11MP, private hospitals beds must grow at 5% CAGR to provide 24% of the target capacity and private hospitals beds must grow at 2% CAGR to 65%; Remaining 10% will be catered by homes and medical canters Source: Malaysia Ministry of Health, Eleventh Malaysia plan , Solidiance analysis *Numbers of beds and doctors does not account for other such as dentists or pharmacist

13 Healthcare Spending Challenges 13 Conclusions The challenges & opportunities of healthcare growth Private Health Expenditures Public Health Expenditures Key Drivers Key Drivers Growing household income Urbanization, change in lifestyle, less home-care More complex health / disease patterns Demand and interest in elective procedures Political obligation So far stable government budget Still strong demand for low cost services Key Drivers Availability concentrates in top tier urban areas Rising cost of imported devices and medications Lack of transparency and information Key Drivers Potential gov. health care budget stagnation Bottlenecks and Facility Inefficiencies Shortage of manpower Key Opportunities Invest in 2nd tier cities and middle class hospitals Use technology to lubricate supply and demand Build out medical tourism industry Key Opportunities Pool capacity with private sector. Incentives for private coverage and insurance Innovative insurance models Key Challenges Creating an efficient market De-bottleneck foreign resources and patient flow Building an attractive case for foreign investments Key Challenges Effective allocation of budgets Build capacity for quality resource training Modernization of platforms and processes Source: Ministry of Health (Malaysia), Solidiance Research & Modeling

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