With the country gearing up for the start of a universal health care coverage scheme, Indonesia has made great progress in addressing many of the historical issues concerning its public health sector. Major new developments in both state and private health care are taking shape, with a number of new hospitals under construction and the prospect of a more open market for foreign health professionals also being discussed. Several challenges remain, however, if the sector is to be reformed in a speedy and effective manner. New attitudes to patient care and a revised approach to procurement may be necessary. For now, there is great potential for domestic and foreign investors.

DEMOGRAPHIC SHIFT: Indonesia currently has a population of some 248m, with the IMF forecasting a birth rate of around 1% during the 2010-15 period. This means an expanding, predominantly young population – indeed, the median age in 2011 was just 28 years.

The mortality rate has been falling steadily too, from 6.9 per 1000 to 6.26 between 2007 and 2011, according to an analysis by Frost & Sullivan. Along with this, life expectancy has increased, from 72.7 to 74.3 years for females and 67.6 to 69.1 years for males over the same period. In addition, a rising standard of living is being reflected in the population’s health and consumption of medical services. According to Statistics Indonesia (BPS), per capita income stood at $3010 in 2010, and rose to $3542 in 2011.

In the first quarter of 2012 57.5% of the country’s total GDP came from Java and 23.6% from Sumatra, while only 2.2% came from Maluku and Papua combined. These numbers reflect the population’s distribution. According to the 2010 census, Java accounted for 136.6m people, or 57.4% of the population, while Sumatra accounted for 49m, or 20.5%. Maluku and Papua had 6.14m inhabitants in 2010, roughly 2.5% of the total. Within Java, the greater Jakarta area (DKI Jakarta) has a greater concentration of wealth than others, with just 3.75% of the population there living below the poverty line in 2010, according to the BPS. In Central Java the rate was 16.1%. IMF figures for 2010 put the gross regional product per capita of DKI Jakarta at $8186 that year, compared to an Indonesian average of $2396 and $444 in the lowest-earning region of North Maluku, some 18.4 times less than the capital region.

Thus, health provision in Indonesia reflects the concentration of population on Java, with its higher incomes, while also serving far-flung and less populated areas such as the Malukus, where poverty levels are high. Indeed, the geography of Indonesia itself is a major factor in health care provision, as with more than 17,000 islands – and some provinces containing hundreds of inhabited islands within one catchment area – access to health facilities can involve considerable journeys. In Papua and Kalimantan too, mountainous terrain thick with jungle is also a major barrier to health provision, making air ambulance services vital.

CARE PROVISION: Looking at the latest BPS statistics for hospitals for 2010, the number of general hospitals nationwide was 1299. In addition, there were 333 special hospitals and 9005 public health centres. The distribution of these by province does broadly reflect the population centres, although not as strongly as the GDP/population correlation.

DKI Jakarta had 79 general hospitals (6% of the total), 51 special hospitals (15%) and 341 public health centres (4%), with Java overall having 578 (45% of the total) of the first category, 222 (66.6%) of the second and 3520 (39%) of the third. Clearly, the island is better provisioned when it comes to specialist medical treatment than other areas of the country, yet less well provisioned in terms of general hospital and clinic facilities. The Maluku-Papua region had 66 general hospitals (5% of the total), only four special hospitals (1%) and 659 public health centres (7.3%). Indeed, outside Java, only Sumatra had special hospital provision of any size, with 14 in North Sumatra and 12 in West Sumatra.

THE DOCTOR IS IN: In terms of the numbers of doctors, a 2012 report from KPMG states there are just 0.4 doctors per 1000 people in Indonesia. This is lower than the global average of 1.4 per 1000, Singapore’s average of 1.8 per 1000 and the OECD’s 3.2 doctors per 1000. The ratio of hospital beds per 1000 people is also comparatively low, at 0.6 against a global average of 3.0 beds per 1000. The government expects it will require around 150,000 hospital beds by 2014 – an increase of 30% in just two years. It is expected to generate huge demand for medical equipment.

Patterns of illness show the disease burden is shifting. In terms of communicable diseases, the BPS data for 2010 shows malaria to be the most common type of serious illness, with around 1.85m cases of this recorded nationwide. Pneumonia was the second-most common, with 499,259 cases, followed by tuberculosis (TB), with 302,861 cases, and dengue fever (DHF), with 156,086 cases. Papua and West Papua recorded the highest numbers of malaria cases, with 21.2% of the total between them, while West Java had the highest number of pneumonia cases, accounting for 38.8% of the national total. The province also scored the highest for TB, with 20.1% of all cases. Java also accounted for the majority of DHF cases.

Yet while communicable diseases were until recently the main cause of death, that has changed. In 2010 the main cause was cardiovascular disease, which accounted for around 30% of all deaths, according to Indonesian Association of Medical Doctors figures. This shift shows both the success of vaccination and disease prevention programmes, while also highlighting the changing lifestyles and risks faced by Indonesians. That year, communicable diseases caused 25% of all deaths, while other chronic diseases were responsible for 21%, cancer for 13%, and all other diseases 11%.

MORTAL COMBAT: Indonesia has also long had relatively high infant and mother mortality rates. In May 2012 Ministry of Health (MoH) officials told the press that these rates were between three and six times higher than in other ASEAN countries.

This is partly connected to the high number of home births, although access to medical attention is improving. In 2010, BPS statistics show, 80% of all births were attended by a health professional. This was a sizeable improvement on the 46% recorded in 1995.

Malnourishment is another factor in infant and mother mortality, with the MoH reporting this condition described some 17.9% of all under-five year olds in mid-2012. The ministry is aiming to reduce this to 15% by 2015. Unsafe drinking water is also widely responsible for high infant mortality, especially in lower-income and under-provisioned areas. The MoH also aims to improve maternal mortality rates from 228 per 100,000 live births in 2007 to 102 per 100,000 in 2015, while bringing the infant mortality rate from 34 per 1000 live births in 2012 to 23 per 1000 by 2015.

AT-HOME CARE: Another feature of Indonesian health care provision is the relatively high number of people self-treating, typically visiting a pharmacy and obtaining drugs over the counter. The BPS data also shows that traditional medicine is still used for self-treatment by many. In 2011, the BPS stated that nationwide, 23.63% of the population had self-treated with traditional medicine in the month before the survey was taken. This method was highest in Papua, where it reached some 56.7%, and lowest in DKI Jakarta, at 14.21%. Some 90.96% of all Indonesians had self-treated with modern medicine over the same period, with Banten on Java the highest, at 95.47%, and Papua the lowest, at 66.04%.

At the same time, many well-off Indonesians go outside the health system altogether and travel abroad for treatment. A 2011 Association of Indonesian Tour and Travel Operators survey found that around 1.5m citizens travelled abroad for health care that year, equivalent to a loss of $1.4bn in health care revenue.

ORGANISATIONS: The sector consists of both public and private providers, although on the ground there is some overlap of individuals, as practitioners employed in the public sector are also permitted to work in the private sector. The private sector is extensive. Indeed, according to a 2009 USAID report, around half of all hospital contacts take place in the private sector. Going private is not just the province of higher-income patients, as some 40% of lower-income citizens, who receive a full government subsidy of health costs, presented at private facilities for treatment that year.

In 2001, with the wave of political decentralisation, most health services in the public sector were handed over to regional control. This had major implications for care provision and funding, with much of the financing placed in the hands of regional governments. The decentralised nature of health care provision makes exact data difficult to obtain, however, and this highlights one of the other challenges the sector faces – that of coordination and integration between health authorities in different regions, as well as between them and the central authorities.

FUNDING CARE: Central government funding, either directly from the budget or via the MoH, is relatively low, with a World Health Organisation (WHO) study from 2010 showing only 7.8% of total government expenditure going on health that year.

A 2008 WHO study found that 10% of total health sector expenditure came from the national budget, 5% from government sources other than the MoH, 3% from social security and 17% from regional government budgets. The biggest portion of health expenditure came from Indonesian households, with a 47% share. The 2010 WHO statistics indicate that 49.1% of total health expenditure was derived from state sources, while 50.9% came from private financing. In the private portion, 75.1% consisted of out-of-pocket (OOP) expenditure, making this still one of the most common methods of health care financing.

Indonesia’s public health care expenditure is also relatively low compared to its regional peers. IMF statistics show only around 1% of GDP being spent on health in 2000-09, around half that of Malaysia and one-third that of Thailand. Further, the 2013 budget indicates that there would be little improvement in central government funding for the sector, as the government attempted to institute a range of deficit-cutting policies.

UNIVERSAL COVERAGE: In light of its low expenditure on health, however, the country is moving in a new direction, with the implementation of universal health coverage. This follows the passing of new legislation in October 2011 – the Social Security Providers Bill (BPJS) – which obliges the government to bring together all social insurance and pension schemes under one roof. Prior to the legislation, several different agencies had been responsible for managing state social security schemes in the country, with three of these for-profit enterprises originally in the health sector: Jamsostek, which looks after health care, accident and retirement benefits for private employees; Askes, which provides free health care in state hospitals to public workers; and Taspen, which does the same for the military.

In 2012 the House of Representatives asked Askes and Jamsostek to prepare for their transformation into non-profit public institutions running the national social security programme. Askes is to provide the national health care programme with its universal coverage from January 2014, while Jamsostek is to provide occupational accident, old-age risk, pension and death benefits schemes from July 2015.

A fourth state institute – Jamkesmas – has also evolved into a major health care provider, and is involved in providing free primary care and inpatient treatment at tertiary hospitals for the poor. Jamkesmas distributes MoH funds directly to hospitals, in both the public and private sectors, with cards issued to those qualifying for the scheme. In addition, some regional governments offer their own version of the scheme. Figures from the National Socio-Economic Survey of Households (Susenas) show around 60m individuals were covered by Jamkesmas in 2010, along with roughly another 27.5m covered by regional government initiatives. According to World Bank figures, in 2010, around 5m households were covered by Askes, 5m by Jamsostek, 3m by private insurance schemes, 15m by Jamkesmas, while 36m had no coverage at all.

A SPECIFIC SCHEME: The new law will change this organisational map substantially while also addressing the issue of non-coverage. Two non-profit public companies will be formed – BPJS I and BPJS II – with the first charged with providing universal health care and the second offering pensions, work-related accident and death benefits. The new system will provide coverage for some 117m Indonesians, bringing contract workers and domestics into the system for the first time too, as the informal sector gains coverage. Foreigners who have worked for at least six months in the country can also get BPJS care. All participants will make contributions, except the registered poor.

The scheme has been generally welcomed, with a target date of 2014 for it to become operational. By providing universal coverage, it is also hoped that the strain on non-primary health care segments can be eased – currently, many Indonesians bypass primary care and go straight to hospital or specialists if they have a medical problem. This impacts the quality of secondary care, as doctors spend more time engaged in primary care activities, rather than in practising their specialities.

In mid-2012, the president had called for some Rp25trn ($2.5bn) to be provided for the BPJS organising body, BPJS Kesehatan, to help fund the new programme, yet financing does remain a concern. The Indonesian Medical Association (IMA), for example, has raised concerns that the amount the government is budgeting for each patient is not sufficient.

“The contribution of the government is small, in comparison to what our own studies indicate is necessary to provide sufficient care,” Dr Prijo Sidipratomo, the president of the IMA Central Executive Board, told OBG. “We are afraid this will affect quality of care.” The plan foresees a monthly salary contribution of 5% to cover the costs of the programme. Both employers and employees will fund this, with a split of 3% and 2%, respectively. Non-wage earners will pay a nominal amount, perhaps $1.40-1.50 a month, while the state will pay the full fees of those certified as poor. The system thus uses a National Health Insurance (NHI) model, rather than a National Health Service model as in the UK, given the country’s low tax base.

It seems likely that, in effect, a two-track system will be operating, given that the amount of government funding may be lower than that necessary to cover costs in private hospitals. Poorer Indonesians will go to state hospitals for BPJS treatment where the amount of subsidy available will fully cover costs, while those on higher incomes will continue go to private health services.

Regardless, the extension of coverage will require a major expansion in the nation’s human resources and physical infrastructure, with the state budget unlikely to cover all of this. Thus, the new scheme depends heavily on the private sector stepping up its investment. Encouragingly, there are signs that this is precisely what the private sector is doing.

SIGNIFICANT EXPANSION: In an effort to keep the costs of the new system down, the government has also begun a major drive to move the sector away from imported to locally manufactured generic drugs (see analysis). This includes an obligation for practitioners to offer the latter type, where available.

At the same time, medical practitioners are also hoping that the introduction of universal health care will alter the balance of power that currently exists between hospitals and suppliers, from pharmaceuticals companies to outsourced caterers, which currently deal within an excessively fragmented system of health care providers. “At the moment, most of us in the system are weak, single buyers. However, starting from 2014 with the new system, the national health provider will be a single buyer,” said Hasbullah Thabrany, a professor at the Centre for Health Economics and Policy at Universitas Indonesia. Another factor that could change the market dynamics is Indonesia’s accession to PIC/S in 2012. This is expected to trigger consolidation, with the number of pharmaceuticals companies widely expected to drop by around 50%.

STAFFING: It is hoped that this may help drive down prices, although there is also the risk of a monopoly purchaser skewing the market. Furthermore, the new unified system is expected to address concerns regarding the distribution of doctors and specialists nationwide. In the existing free market system doctors and other medical professionals have tended to gravitate towards the higher-paying jobs at more specialised facilities, mostly in the DKI Jakarta area.

“Before, if you went to an outlying area, there was no guarantee you would even get paid,” said Thabrany. “Now though, under the NHI system, doctors’ wages will be guaranteed wherever they work.”

Indeed, the future may also see more foreign doctors begin practising in Indonesia, given the fact that the implementation of the ASEAN common market in 2015 will remove barriers to the movement of labour among member nations. Currently, however, there is strong resistance to foreign medical professionals working in the country, led by the IMA, with this practice currently prohibited – although some do work unofficially, or via Indonesian go-betweens.

Despite these challenges though, domestic private sector health providers are already boosting their involvement in the country, in the expectation of a major expansion in health services and health spending – along with a steadily growing middle class.

One indicator of the interest in the sector now being shown internationally is the surge in private equity-backed deals in health care now under way.

As an example, Siloam Hospitals, a chain run by Indonesia’s Lippo Group, has been rapidly expanding, announcing plans for a new hospital in Ambon in late 2012 as part of a building plan that has seen five state-of-the-art private hospitals open across the country in the past few years. Earlier in 2012, Bain Capital, Blackstone, KKR & Co and Dubai’s Abraaj Capital were all in competition for a 20% stake in the group, which is valued at approximately $300m. Local developer Ciputra is also investing in new hospitals.

OUTLOOK: The coming few years are expected to see some major changes in the way health care is provided in Indonesia, with the new NHI system getting under way, an ongoing expansion of the nation’s facilities and health spending rising, thanks to the participation of both the public and private sectors.

There are, as could be expected, many challenges facing the sector during this transitional period, yet once the system begins to overcome the initial glitches and bottlenecks, many see this as likely to unleash a significant amount of investment. The market is set to expand organically too, as the country’s GDP and population continue to grow, with huge potential therefore built in. It is time now, perhaps, to get in on the ground floor.