Indonesia’s healthcare industry is a lucrative investment opportunity for foreign investors as the growth of its middle-class and the introduction of universal healthcare has driven demand in almost all aspects of the industry from hospitals to pharmaceuticals to medical devices.The government, in its attempt to open the sector more to foreign investors, made amendments to the country’s Negative Investment List (NIL) in 2017 that gave foreign investors a larger stake in certain sub-sectors of Indonesia’s health industry, such as in hospitals, specialized clinics, and medical equipment.
Furthermore, by improving the country’s healthcare infrastructure, the government hopes this will encourage Indonesians who seek medical treatment abroad to spend domestically. More than 1.2 million Indonesians spend more than US$2 billion annually on healthcare overseas, mainly in neighboring Singapore and Malaysia.
Universal healthcare in Indonesia - Indonesia introduced its universal healthcare program, the JKN, in 2014, which has since grown into the world’s largest, covering over 200 million people.
The program is run by the Social Security Administrator for Health (BPJS) agency, and every citizen as well as expats working in the country are mandated to join the program. All companies in the country are responsible for registering their employees and paying a percentage of their premiums.
Those registered with the BPJS program are eligible to receive free health services ranging from simple dental check-ups to serious procedures, such as organ transplant.
In the private sector, the employer must pay four percent and the employee the remaining one percent. For civil servants, the government contributes three percent while the employee contributes two percent.
In addition to the employee, the premium also covers their spouse and up to three dependent children up to the age of 21. Starting from June 2020, the government has been doubling premiums for the program, hoping this can reduce the program’s deficit which reached US$2.3 billion in 2019.
Private health insurance - Roughly 20 million Indonesians are covered by private health insurance, although this is dwarfed by the number covered by the JKN program. Additionally, as businesses in the country are obligated to enroll their employees in the program, many have chosen not to participate in private health insurance schemes.
The ranks of those that can afford private insurance are increasing, as the middle and affluent-class demand faster and quality service. Private insurers will play an important role as an add-on to public coverage as the JKN, although providing a free service, will only pay up to the patient limit.
The ranks of those that can afford private insurance are increasing, as the middle and affluent-class demand faster and quality service. Private insurers will play an important role as an add-on to public coverage as the JKN, although providing a free service, will only pay up to the patient limit.
Market for hospitals and healthcare facilities - Indonesia has 2,925 hospitals providing just over 318,000 beds, or 1.17 beds per thousand population – the lowest rate in ASEAN.
Some 63 percent of the country’s hospitals are privately managed, and the low number of hospital beds reflects the growing opportunity for foreign investors to fill the shortfall. There is an increasing demand for new hospitals in second-tier cities such as Surabaya and Bandung as more of the population engage with the universal healthcare program.
There are currently more than 26,000 healthcare facilities where patients can get medical treatment under the JKN program. This includes over 2,000 hospitals, 9,000 community health centers and private clinics, over 1,100 dentist clinics, and 1,000 opticians.
The government has allowed foreign investors to have 67 percent ownership in private hospitals and 70 percent ownership for investors from ASEAN. This is also the case for private health clinics, although foreign investors are limited to specialized medical services and not basic medical clinic services.
The main challenges for hospital operators will be recruiting doctors (the country only has 0.4 doctors per 1,000 population) in addition to choosing the right location to build the hospitals. The opportunity lies in second tier cities as bed occupancy is still low and thus there is potential for growth. Furthermore, second tier cities offer lower property prices and hence profitability is usually higher than in first tier areas such as Jakarta.
Investors should closely work with reputable medical schools and vocational schools and provide access to high-quality equipment and training. Hospitals are also advised to allow specialists to work in other practices/hospitals, enabling them to expand their skillset and experience.
Some 63 percent of the country’s hospitals are privately managed, and the low number of hospital beds reflects the growing opportunity for foreign investors to fill the shortfall. There is an increasing demand for new hospitals in second-tier cities such as Surabaya and Bandung as more of the population engage with the universal healthcare program.
There are currently more than 26,000 healthcare facilities where patients can get medical treatment under the JKN program. This includes over 2,000 hospitals, 9,000 community health centers and private clinics, over 1,100 dentist clinics, and 1,000 opticians.
The government has allowed foreign investors to have 67 percent ownership in private hospitals and 70 percent ownership for investors from ASEAN. This is also the case for private health clinics, although foreign investors are limited to specialized medical services and not basic medical clinic services.
The main challenges for hospital operators will be recruiting doctors (the country only has 0.4 doctors per 1,000 population) in addition to choosing the right location to build the hospitals. The opportunity lies in second tier cities as bed occupancy is still low and thus there is potential for growth. Furthermore, second tier cities offer lower property prices and hence profitability is usually higher than in first tier areas such as Jakarta.
Investors should closely work with reputable medical schools and vocational schools and provide access to high-quality equipment and training. Hospitals are also advised to allow specialists to work in other practices/hospitals, enabling them to expand their skillset and experience.
Telemedicine investment outlook - The integration of information and communication technology (ICT) into healthcare will also accelerate reforms in Indonesia’s healthcare sector. The use of healthcare apps, for instance, could transform the way hospitals and doctors store their records, collect, and share patient data.
The coronavirus pandemic has accelerated the growth of digital healthcare and will become the new norm in the region post-COVID-19. Local healthcare app, Alodokter, recorded more than 30 million active users since March 2020 (one and a half times higher than pre-COVID-19 traffic). Another telemedicine app, Halodoc, as well as ride-haling giant, GoJek, partnered with the Ministry of Health to provide COVID-19 diagnostics in remote areas.
In a country that has only 0.4 doctors per 1,000 population, in addition to geography of over 17,000 islands, telemedicine makes healthcare accessible to the furthest regions and helps mitigate pressure on the existing healthcare system.
Market Value - Indonesia’s medical device industry is worth an estimated US$4.5 billion in 2019 with the majority (US$2.8 billion) coming from imported products.
Imported products are largely sophisticated medical instruments, such as diagnostic tools and medical lasers. By contrast, exports of medical devices reached less than US$267 million in 2019, dominated by low added-value products, such as masks, surgical gloves, and hospital furniture.
Foreign investors are limited to 49 percent ownership and must apply for a special license from the Ministry of Health (MoH) to supply high-tech medical equipment sector. For the majority of low-tech medical equipment, the MoH will only issue a license on a case by case basis.
Demand for medical devices will be driven by the expansion of private and government hospitals and clinics as well as improvements on existing facilities. Another factor behind this expected demand is the rise of non-communicable diseases and the diagnosing of which require advanced and high-tech equipment.
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