Sector Overview: Healthcare

Sector Overview: Healthcare


This column is jointly written by @fayewang, @calvinwee and @gordon_ong
-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.
-Calvin is a fundamental analyst at heart and an ardent disciple of value investing. He relishes the process of searching for undervalued stocks and enjoys collecting dividends from his stocks.
-Gordon has a demonstrable interest in equity investments, financial markets, and negotiating deals. As @NTUInvestmentClub president, he has an understanding of what factors drive an organisation’s success.

Sector Overview

The high quality of the healthcare sector is one of Singapore’s crown jewels. Singapore was ranked 1st in Asia according to Bloomberg’s “Most Efficient Health Care list of 2014.”, which measures the overall efficiency of a country which considers life expectancies, healthcare cost as a percentage of GDP and other relevant factors. Singapore has developed an advanced healthcare system that stands out for its excellence accompanied by relatively low government spending. Affordable basic healthcare is available to Singaporeans through subsidised medical services at public hospitals and clinics.


Source: MOH website

As seen in the table, it is remarkable to note that Singapore spend less than 3% of its GDP on healthcare as compared to other developed nations such as US which allocates up to 18% of its GDP. This is largely because Singapore practices a mix of public and private care financing for its healthcare system. This requires Singaporeans to take responsibility for their own health and their medical care expenses. 80% of the primary healthcare services are provided by 1900 private clinics while the government polyclinics provide the remaining 20%. However, the opposite is true for more costly hospitalisations care, whereby 80% of it is provided by the public sector via two integrated care networks and with an additional 13 private hospitals accounting for the remaining 20% of inpatient admissions. Singapore has 11800 hospital beds or 3.7 per 1000 people, a comfortable margin.

Recently in January 2017, the government decided to restructure the public healthcare sector by regrouping the six regional health systems into three integrated clusters, and it is expected to be completed by 2018. The reason for the restructuring was to strengthen the system for future challenges, such as dealing with an ageing population and more people with chronic ailments.

Sub Sectors

Clinics & Specialist centres
Private clinics provide for the majority of the population’s healthcare needs. They are monopolistically competitive in terms of their geographical location. Specialist centres serve another niche market, specific operations and treatments that cannot be provided elsewhere. Both clinics and specialist centres are unlikely to experience supply and demand impacts of larger economic trends such as fewer medical tourists or a new government hospital. However, they might become the subject of attention with med-tech sector picking up speed.

Public and Private hospitals
Singaporeans prefer public healthcare services because of the high quality and the subsidies that come with it. Private hospitals could cause up to 5 times as much as the public hospitals. There are also many schemes when it comes to the private healthcare providers. For example, there is the Community Health Assistance Scheme (CHAS) which was introduced in 2012. The scheme enables Singapore Citizens from lower- to-middle income households, as well as all Pioneers (people aged 65 and above), to receive subsidies for medical and dental care at participating General Practitioner (GP) and dental clinics. This, is one of the biggest limiting factors for private healthcare providers who are not part of the scheme.

Many private healthcare providers however, have registered with MOH and are now taking part in the scheme as well. This includes Raffles Medical and Q&M dental group.

Key Demand and Supply trends

Demand

1. Overall Growth of Medical Tourism – Regional demand for healthcare will rise in tandem with the growing population, greater life expectancy and increasing purchasing power in Asia. Asia’s population will expand from 3.2 billion in 2002 to 5.6 billion in 2050. Adding to the emerging state of medical tourism is increasing consumer willingness to travel for health care services, and renewed direct-to-consumer marketing by medical tourism companies and foreign destinations.

2. Singapore as a Regional Leader – Singapore is a broad-based medical hub and has capabilities throughout the continuum of services. Singapore’s excellent healthcare system, medical technology and skilled professionals allows it to attract a high demand of patients from around the world. In particular, medical tourists come to enjoy high quality general surgery and medicine and specialist services, including cardiology and organ transplants. However, with more SEA countries setting up private hospitals providing premium hospital care, there is an oversupply in the private sector. In addition, a hike in labour costs is making the sector less profitable.

3. Singapore’s aging population – According to data from Singapore Ministry of Health, its population has reached 5.61 million in 2016, with a stable average growth of 1.36% over recent 3 years. At the same time, the percentage of people who are 65-year old or above observed the highest number within recent 10 years, and the group occupied 12.4% of the total population. Singaporean’s expected average lifespan was 82.7 in 2015, which has improved from 76.3 in 1995 and 80.1 in 2005.

4. Schemes assisting private sector affordability – CHAS and PMIS are designed to make private healthcare affordable. As Singaporeans already prefer the time savings and quality care provided by private sector, these initiatives will only diminish cost differences and accelerate private sector growth at least on the general practitioner level.

Supply

1. Government spending in public sector – Government has been spending more to expand its network of public hospitals and polyclinics (Budget 2017), making their locations more accessible and lowering average queue times. With reference to the picture above, Government healthcare development expenditure has doubled from FY13 to FY15, and total spending has grown from 1.6% to 2.1% of GDP during the same period. In line with the overall trend of moving towards inclusivity, the Singapore government has committed a larger proportion of its budget towards funding the operating and growth of healthcare.

2. Recruitment of Nurses, PMET and Support Staff – Government schemes in place to attract locals to alleviate the manpower supply crunch in recent years (Budget 2017). Mid-career conversions and part-time staff are particularly targetted by government initiatives.

3. Med-Tech – The Med-Tech industry provides practitioners with access to the latest and most advanced therapies and diagnostics, thus supporting the general healthcare industry. Singapore provides excellent IP protection and enforcement which has attracted numerous MNCs to set up research centres. In addition, Spring Singapore has recently announced a 60 million investment in Med-Tech start-ups.

Data of Singapore’s statistic shows apparent increase of hospital admissions both in public and private sector hospital. Compared to data from previous years, result of hospital admissions in 2016 surged by 9.44% and 9.99% in public and private sector respectively. Several factors that contribute to the growth in the healthcare sector are listed and explained here.

Upsides & Downsides

Data of Singapore’s statistic shows apparent increase of hospital admissions both in public and private sector hospital. Compared to data from previous years, result of hospital admissions in 2016 surged by 9.44% and 9.99% in public and private sector respectively. Several factors that contribute to the growth in the healthcare sector are listed and explained here.

source: MOH websits

Upsides:

1. Internal driver: robust growth of demand.

Fundamental reasons of growing healthcare demand are an aging population and longer life expectancy, as discussed earlier. Long-term care expenditure for the elderly is also set to increase, with nursing homes. Government projects that the number of beds required by 2020 is 17,000, a CAGR of 10% per annum. This phenomenon is compounded by manpower constraints within healthcare, driven by misaligned labour force expectations, labour restrictions and wage stagnation; resident ratio declined to 6.0 in 2014 and is expected to fall further as the population continues to age. As private healthcare providers are dominated by a few big players and have high barriers to entry, it is safe to assume that these players can grow their demand organically.


source: MOH website

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