The year 2016 marks the second year of the rollout of universal health care, known locally as JKN, which aims to cover a population of approximately 260m by 2019. While millions have already been brought under coverage, reaching the whole population of an archipelago that contains 6000 inhabited islands will be no easy feat. Still, hopes are high for JKN. With greater access driving greater need for services, the government and its private sector partners are prioritising the expansion of health care infrastructure and the training and recruitment of medical professionals. Meanwhile, the country’s ageing population and shifting disease profile are triggering demand for specialised care and equipment in facilities. As the government works to offset the effects of global economic headwinds on its energy and industry sectors, health is increasingly viewed as an area that can help sustain growth and draw investor interest. Indeed, marked by the aforementioned trends, coupled with innovations in pharmaceuticals and health care technology, Indonesia’s health sector is emerging as one of the most attractive in ASEAN from a growth perspective.
Under Cover
On January 1, 2014, Indonesia’s JKN took effect as a social health insurance (SHI) scheme under the governing Social Security Management Agency (BPJS). It replaced the multiple SHI plans once available to civil servants as well as the nation’s poor, bringing approximately 130m Indonesians under JKN coverage by November 2014. The new scheme was designed to bridge the gap in coverage for those in the middle – citizens whose income is too high to qualify them for SHI, yet too low to afford private health insurance. The national plan covers costs for preventative care, vaccinations, prescriptions and other medical benefits, as well as non-medical benefits such as hospital stays and ambulance services. Citizens and foreign residents will be required to register under the BPJS by 2018, and 2016 marks the deadline for registration of micro-enterprise employees.
Since July 2015 private business and government employees (who are not civil servants) have been required to contribute 1% of their salary as a JKN monthly premium. Employers must also contribute 4% of enrolled employees’ salaries. This payment scheme brings the individual under what is known as a first- or second-class JKN accommodation level.
The Challenges Ahead
While JKN is improving access for millions of Indonesians, it is not without criticism. Many participants have expressed dissatisfaction with a number of the coverage’s features. Because the system operates with a strict referral procedure, participants have little choice over providers. They are limited to one facility for non-emergency care, meaning participants, particularly those in remote areas, often incur travel costs as well as long waits and other delays.
Analysts are concerned that due to geographical challenges and lack of infrastructure in many areas, distribution of coverage throughout the archipelago will be unequal. Critics also question whether payments for services under JKN will be made on time and whether the programme can be sustainably financed through 2019 and beyond. Furthermore, the health sector is struggling with a lack of physicians, nurses and technicians, and will require even more workers as additional public and private facilities are built. Two years on, those concerns are still relevant, but strides are being made in the effort to expand health care infrastructure, fill financing gaps and invest in the education and training needed to ensure Indonesia’s demand for qualified medical professionals is met.
Minding The Gap
According to OECD data, Indonesia had average annual per capita growth in health spending of 8.9% between 2009 and 2013. Per capita health expenditure reached $299 in 2014. Total health care spending currently accounts for 2.9% of Indonesia’s GDP, a figure that falls well below the global average of 9.9% even though it has risen in recent years. Analysts cite this as the main concern over whether Indonesia will be able to reach its goal of full JKN implementation by 2019.
With the public health system already stretched, growth will need to happen quickly. The country had an average bed-to-patient ratio of 1:914 and an average hospital-to-patient ratio of 1:112,054 as of April 2015. Frost & Sullivan, a global market research and consulting firm, projected a compound annual growth rate (CAGR) for hospital beds of 2.3% between 2013 and 2019, with an addition of approximately 40,000 units expected by 2019. This places Indonesia’s CAGR between those of its neighbouring health sector competitors, Malaysia and Thailand, for which Frost & Sullivan forecast hospital bed expansion rates of 1.7% and 2.5%, respectively.
Indonesia has one of the lowest doctor-to-patient ratios in South-east Asia at 0.2:1000, and there are approximately 1.4 nurses and midwives per 1000 patients. With JKN bringing greater access to services, there is an increasing sense of urgency to address these shortages. While the public sector is working to expand capacity and meet the demand for medical professionals, it will be necessary for the private sector to step in and fill the gaps. Indonesia has a young population and a middle class with increasing disposable incomes. In the coming years its health care needs will grow as the population ages and battles the rising prevalence of lifestyle diseases, such as diabetes and heart disease, that are known to accompany economic growth.
The Fight Continues
Indonesia’s government has made great strides in the fight against malaria, dengue, tuberculosis (TB), HIV/AIDS and other pandemics, but the country’s climate and geography, as well as gaps in funding and access, still make it a high-risk area for tropical and other communicable diseases (CDs). Multidrug-resistant TB is on the rise, posing significant challenges to containment of a disease that accounts for 100,000 deaths annually.
Approximately 80,000 infants die in Indonesia each year, and the maternal mortality rate remains high (see analysis). As such, much of the foreign aid invested in Indonesia goes towards initiatives that help decrease rates of preventable deaths. The US Agency for International Development alone contributed $60m in fiscal year 2015 to combat the spread of disease and to assist the country in reaching its health-centred development goals. Together with the Ministry of Health (MoH), non-governmental organisations and aid agencies are focused on improving community health education and increasing access to medications, clean water and sanitation. Such initiatives are vital in the ongoing battle against infectious diseases, which are responsible for tens of thousands of deaths annually and continue to strain the government’s health care budget.
Zika
In June 2016 the World Health Organisation (WHO) included Indonesia in a list of countries that had, between 2007 and 2014, documented presence of Zika virus, a mosquito- and sexually-transmitted disease that has been linked to microcephaly – insufficient brain development in infants – and other symptoms and conditions. Local and international authorities have begun investigating recent cases of transmission, including reports that an Indonesian sailor was diagnosed upon arrival in Taiwan, after having travelled from East Java in June. Australia, one of Indonesia’s top tourism markets, updated its advice to travellers in June 2016, noting that the country was “experiencing sporadic transmission” of the virus. The notice urged pregnant women to consult their doctors prior to making travel arrangements or to consider delaying trips.
Even though the MoH has maintained that Zika does not yet pose a serious threat to the archipelago, however, international warnings such as Australia’s against visiting top destinations, including Bali, have the potential to affect tourism earnings in 2016. With Zika rapidly spreading in the Americas and cases also reported in Vietnam, Thailand and Singapore, the disease is set to become a new focus of the Indonesian public health agenda, particularly in the areas of prevention, diagnostics and research.
Profile Shift
While Indonesia continues to battle CDs, the focus has shifted to non-communicable diseases (NCDs), mainly diabetes, cancer and heart disease, which have become responsible for more deaths annually than CDs. As seen in the US, Europe and other ASEAN countries, diseases associated with lifestyle occur more frequently as economies develop and incomes increase. Indonesia’s high rate of tobacco consumption is another major contributor to the rising prevalence of NCDs.
In 2015 approximately 76% of Indonesian males over the age of 15 smoked cigarettes, according to the WHO, the highest rate in the world. Smoking-related illnesses account for the deaths of 200,000 Indonesians every year, with the cost of treating tobacco-related diseases at Rp11trn ($803m) annually, according to local media. The WHO, meanwhile, reported that the government spent Rp300m ($21,900) on tobacco control in 2014.
Health sector leaders are also stressing the importance of preparing for the future needs of the country’s ageing population. According to World Bank estimates, Indonesia’s population of adults aged over 65 is expected to increase 7-14% by 2050. The country, ASEAN’s most populous, is already struggling to provide care for its senior citizens and will require substantial investment in aged-care facilities, home health services and other segments to prepare for future demand. As more Indonesians are diagnosed with NCDs, demand for faster disease screening will also increase. Facilities will need to be supplied with the right diagnostic equipment, devices and medications so that treatment and surgeries can be done locally and successfully. New and improved pharmaceuticals, health information systems, electronic medical databases, telemedicine and 3D printing are among the new technologies that are being adopted by heath care providers around the world. Indonesia in particular is in a good position to integrate them (see analysis).
Open For Business
One segment that is set to benefit from Indonesia’s strides toward economic liberalisation is the domestic pharmaceuticals industry, the value of which has been forecast to reach $12.6bn by 2020. Previously on the negative investment list, the sector became one of 35 opened to foreign ownership following a government declaration in February 2016. Shortly thereafter, the government announced the 11th stimulus package, which should help the Indonesian pharmaceuticals industry reach its potential as a production centre.
The plan outlines strategies to boost manufacturing in the resource-rich country, where unique biodiversity underscores potential for strides in research and development (R&D). The package includes plans for developing a special economic zone as well tax holiday provisions and industry deregulation, which should allow for greater private sector involvement as well as partnerships with government entities. There is much room for R&D growth, particularly in the clinical trial segment, and the government wants to encourage innovation. As it continues to reduce red tape and regulatory hurdles, there are expected to be significant opportunities for R&D and product distribution going forward.
Halal Things Considered
The government will be paying closer attention to vaccine production after discovering earlier in 2016 that fake vaccines have been made and distributed to clinics throughout the country for over a decade. Families in affected areas are rushing to re-vaccinate their children and the government has promised greater oversight to ensure only legitimate products reach medical facilities. While Indonesia has done well to snuff out the fake product ring, it is also making advances in research and production of vaccine technology. Demand for vaccines will rise under JKN.
Indonesia, the only country in the Organisation of Islamic Cooperation that produces WHO-certified vaccinations, is asserting itself as a contender in a high-potential niche market: halal vaccines. Demand for halal pharmaceuticals products is high, especially in markets like the Gulf, where Indonesia continues to develop partnerships. Saudi Arabia announced plans in March 2016 to partner with Indonesian pharmaceuticals giant, BioFarma, which will assist the Gulf nation in developing its own vaccine technology. While it provides vaccines to the MoH, BioFarma also exports products to 130 countries, namely for immunisation against polio, tetanus and other infectious diseases.
Pharma Focus
According to Frost & Sullivan estimates, JKN implementation and foreign investment could trigger a 48% growth in generic pharmaceuticals from $3.86bn to $5.71bn between 2015 and 2022. The firm also forecast a 33% growth of brand-name drugs during the same period. These positive trends are set to continue as Indonesia maintains its battle against infectious diseases while facing the growing threat of NCDs. Companies are focusing on consumer outreach, increasing access to pharmacies and new products, as well as expanding and upgrading manufacturing facilities to spur domestic production growth, while also meeting the JKNfuelled demand for affordable generic medications.
The private sector is also making moves to establish Indonesia as a regional production centre, with firms such as the US’s Merck and Malaysia’s Pharmaniaga investing in infrastructure development. In March 2016 Pharmaniaga announced it would allocate about $2.4m to raise capacity at its Badungbased plant, citing the ASEAN market as a key prospect for future growth. Merck, which saw 14.5% growth in biopharma in 2015, is also pursuing a similar initiative at its facility in South Jakarta. In addition, the World Bank announced in July 2016 that it would give a $33m loan to B. Braun for the construction of an injectable medication manufacturing plant, due to be completed in November 2016.
As more products enter the market, consumer education will be an important area of focus. “There is an important difference in the perception of specified drugs and generic drugs in Indonesia. The price of generic ones may be cheaper but people are reticent in buying them, they think the quality is inferior to the branded products,” Iwan Pasila, CEO of Mandiri InHealth, told OBG. “Our industry needs to raise awareness with regards to the components and benefits of branded and generic drugs.”
Hospital Expansion
Key players in the health sector are anticipating high growth in the hospital and clinic segments, with JKN set to increase demand for services around the country. Siloam International Hospitals, the country’s largest operator of private hospitals, announced that it would open 13 hospitals, each forecast to cost $8m, by 2017. The company, an affiliate of Lippo Group, had four hospitals in 2010 and expects to have 33 by the end of 2017 when construction of the targeted pipeline of facilities concludes. With the addition of new hospitals in 2016, Siloam is set to close the fiscal year with a 5.2% increase in revenues. Many of Siloam’s new facilities will cater to people in underserved areas that are now able to seek care through JKN coverage. They will also be able to provide services for the increasing number of tourists visiting more rural areas. In addition to investing in new hospital construction, Siloam has also reported that it will invest $110m in equipment for its facilities in 2016.
In the coming years demand will remain high for specialty clinics, especially cardiology, oncology and orthopaedics. Kalbe Farma, an Indonesian pharmaceuticals giant, is expanding its services to tap into the wider health care market and fill gaps in specialty care. It is set to open a 200-room liver treatment clinic in Jakarta and will consider eight additional hospitals in other regions. The Jakarta City administration is also making plans to meet demands for specialised care. Two facilities are in the works: a palliative care centre and a 1000-bed cancer hospital. The former would have approximately 500 units focusing on pain relief and symptom management for patients with terminal conditions.
With only 40 chemotherapy machines in Indonesia and cancer diagnoses increasing annually, there is great need for additional treatment facilities and equipment. Patients who can afford to travel often go to Singapore, Malaysia or Thailand for treatment. Going forward, the government and its private sector partners aim to develop the infrastructure that would allow those patients to stay in Indonesia.
Outlook
With big plans on the public agenda and diversifying activity on the private side, the health sector is poised for long-term growth. Over the next three years eyes will be on the government’s progress with JKN. The keys to achieving universal coverage by 2019 will be in overcoming funding pressures, ironing out regulations and ensuring that staffing demands are met. Meanwhile, if efforts to expand pharmaceuticals production succeed, Indonesia could be in a strong position to serve ASEAN and the wider region as an export centre. It will be some time before the country establishes itself as a medical tourism market competitive enough to rival Malaysia and Thailand, but its health sector is becoming a regional contender in other spheres.
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