Malaysia - Healthcare reform could impact Malaysia

KUALA LUMPUR: Ready or not, Singapore’s decision to radically raise public healthcare standards will have an impact on healthcare providers and related industries on both sides of the Causeway. 

Under the Healthcare 2020 master  plan unveiled last week as a follow-up to recent national budget initiatives, Singapore plans to add 3,700 hospital beds and recruit 20,000 more healthcare workers by 2020 to better cater for the city state’s greying population.

In addition, salaries will reportedly be raised by 20% by 2014 to retain manpower in Singapore public hospitals, with adjustments happening as early as next month. The adjustment is expected to cost the Singapore government S$200 million (RM480 million) this year.

Citi Investment Research economist Kit Wei Zheng said in a recent note the increase in hospital capacity and healthcare subsidies “may provide increased competition for existing profit-driven private healthcare providers”.

Given that Malaysia healthcare providers are eyeing increased health tourism income, including spending from Singapore, reforms at the public hospitals would have an impact on demand from the city state, though change may not be immediate, said a local analyst.

Singapore’s move comes ahead of the planned mega dual-listing of Khazanah National Bhd’s Integrated Healthcare Holdings (IHH), expected in the second half of 2012. IHH houses the Parkway-Pantai chain of hospitals in Singapore and Malaysia; Turkey-based hospital chain Acibadem; the IMU Education Group here and a 11.22% stake in India-based Apollo Hospitals.

Expectations are that IHH will be sold at high multiples, given the quality of its assets as well as Khazanah’s investment costs, analysts have said.

OSK Research believes response to the IPO “would be strong, given that IHH presents wide exposure to untapped growth potential in the fast growing private healthcare sector in emerging markets”.

“The impending listing will indirectly provide an upward re-rating catalyst for other listed healthcare companies in Malaysia and the region,” OSK wrote in a March 1 note, retaining an “overweight” recommendation on the sector.

“KPJ [Healthcare Bhd] remains our top buy. Fair value remains at RM5.21 but we are revisiting our valuation in light of the IHH listing.”

KPJ, whose valuations have benefited from the scarcity of listed healthcare providers in the region, closed at RM4.86 last Friday.

The market will soon find out just how much a premium IHH can command in the increasingly competitive healthcare sector.

Meanwhile, Malaysia, which is also working out a plan to improve its public healthcare standards, may consider implementing similar reforms that could have nearer-term impact.

IHH’s Parkway East Hospital, for instance, was last week named as a partner by the Singapore government, which plans to lease capacity from private healthcare operators as an interim measure to ease congestion at public facilities.

Changi General Hospital will lease some beds from Parkway East Hospital while Raffles Medical Group Ltd’s Raffles Hospital will help treat subsidised patients.

While there might be some near-term boost from the public-private partnership to lease beds, DBS Vickers Research analyst Andy Sim says the financial impact is “uncertain” given that details have yet been finalised.

“Over the medium term, the challenge lies in managing costs, namely manpower,” Sim wrote in a March 7 note, pointing out that staff cost accounts for about 49% of revenue at Raffles Medical Group.

“With the increase in public sector remuneration, the bar by private operators to attract healthcare workers is likely to be raised. This comes at a time when capacity is increasing in the private sector.”

OCBC Research analysts Andy Wong Teck Ching and Eric Teo are positive, though, on the Singapore government’s decision to utilise spare capacity at private hospitals, where average bed occupancy rates are about 55%. They reckon healthcare companies will need to raise productivity and efficiency to mitigate cost pressures.

“It is also possible that they would largely be able to pass through some of these higher costs to consumers in the form of higher prices, given the inelasticity of healthcare demand and growing demand for quality healthcare services,” the Singapore-based OCBC analysts wrote in a March 7 note.

To be sure, the top-tier operators will likely be able to continue raising prices in return for quality. But the jury is still out on the rest of the players, analysts say.

What’s certain, though, is the increase in demand for healthcare workers could be a boon for institutions like KPJ Healthcare (via KPJ University College of Nursing & Health Sciences) and Masterskill Education Bhd, which have units offering training to nurses and other healthcare workers, said a local analyst tracking the sector.

The Parkway-Pantai group also has its own training colleges as do Sime Darby Healthcare Group which has three medical facilities.

Singapore-listed Health Management International Ltd (HMI), a Medisave-accredited owner-operator of hospitals in Melaka and Johor, may also benefit. HMI Institute of Health Sciences Pte Ltd’s Certificate in Nursing Practices is approved by the Singapore Nursing Board for foreign-educated nurses.

To illustrate, Singapore’s targeted increase in healthcare workers is a 50% jump, whereas the 3,700 beds are bigger than KPJ Healthcare’s entire portfolio of some 2,700 beds in 22 hospitals in Malaysia and Indonesia.

Even so, a local analyst reckons any impact, even to the education providers “might not be immediate or visible in the near term”.

She reckons the salary increase in Singapore and higher a healthcare workers to patient ratio may trigger similar moves here in Malaysia. “That could have a bigger and more significant impact to players here,” she said.

Cindy Yeap

The Edge Financial Daily

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