Investment in Thailand’s health care services over the last 40 years have created an internationally lauded system and a paragon for lower- and middle-income economies. Yet as the nation’s economy has prospered, Thailand is facing a growing occurrence of chronic, non-communicable diseases among its ageing adult population, leading to a trend in treatments to raise the quality of life for patients. Beginning to show signs of strain, public health services are also expanding into private sector operations in an effort to offset a resource and brain drain incurred from a decade of strong growth in private hospitals, which have profited on a larger share of domestic and international markets.
HEALTHY DEVELOPMENT: Health has been at the forefront of development for four decades, backed by a government well-versed in technological development that has pursued pro-rural systems and with royal patronage. By providing extensive and ongoing investment in the sector, Thailand has been able to develop a comprehensive framework of primary and district health care centres critical to achieving its Millennium Development Goals in the early 2000s.
The Ministry of Public Health (MoPH), remains the core agency responsible for the health care system, producing its own nurses and para-professionals. Although the government remains the principal investor in the health sector (about 76% of funding) Thailand’s improving health record has also prospered from economic growth, broad educational campaigns and poverty reduction, social equity and public infrastructure. This culminated with the establishment of a welfare state in 2002, following promulgation of the 2001 National Health Security Act. The subsequent Universal Coverage Scheme (UCS) provides insurance to some 48m people that had previously been outside the formal economy and existing health schemes. From 2003-11, the UCS saw outpatient visits per patient jump from 2.41 to 3.64, and hospital admissions double.
At times criticised as a populist tool, the UCS has instead become an apolitical keystone of government policy, which has proven immensely popular. As well as providing universal access to health care services, UCS has provided financial protection for the vulnerable. It was instrumental in reducing catastrophic health expenditure from 6.8% to 2.8% between 1996 and 2008, according the World Health Organisation (WHO).
WELL-FUNDED WELFARE: Most of Thailand’s 64.5m citizens are covered under one of three health care schemes. The Social Health Insurance (SHI) scheme, launched in 1991 following the 1990 Social Security Act, covers approximately 9.8m private sector employees in the formal economy. The Civil Service Medical Benefit Scheme (CSMB), provides coverage to approximately 5m public sector employees and their dependents. The remainder are covered under UCS.
The SHI is funded through tripartite payroll contributions from the employee, employer and government, whereas the UCS and CSMB are financed through general tax revenues. The SHI, employs an inclusive capitation system of financing for outpatient and inpatient services that has proven effective and largely popular among members and service providers, who are reimbursed according to diagnosis-related group-based (DRG) payments. This largely predictable form of financing has ensured a smooth flow of income to service providers that has enabled better business planning.
The UCS, however, employs a capitation scheme for outpatients and a DRG scheme for inpatients, the budget for which was BT54bn ($1.72bn) in 2011. The MoPH has reported that this model has helped minimise costs by increased use of generic medicines and proper diagnosis and treatment of patients, since there is no financial incentive to provide other services.
DRAINING THE SYSTEM: This is not the case for the CSMB, which remains the financial thorn in the health sector’s side. Despite covering just 5m people, the scheme was established on a free-choice, fee-for-service model, as employed in the US, that has now precipitated serious cost escalations, supplier-induced demand and the system inefficiencies, according to the ministry.
Providing government reimbursement for all expenditures, largely without audit, the CSMB has evolved into a revenue stream for public hospitals. Research backed by the MoPH in 2009 showed 67% of expenditures were outside of the mandated national list of essential medicines and although the need for reform has been voiced repeatedly, it remains elusive.
“Efforts to push the fee-for-service CSMB towards a capitation model have consistently failed since 1995 due to benefits accruing to all entrenched parties,” representatives of the MoPH’s International Health Policy Programme and Health Insurance System Research Office told Economic & Political Weekly in February 2012 . The system is lucrative; according to a May 2012 report by the Health Insurance System Research Office, average per capita spending under the CMBS is $367, compared to $71 and $79 per capita expenditures for SHI and UCS patients, respectively, in 2010.
Meanwhile, financial woes plague the system, largely due to the small formal economy tax base on which the government relies. Insufficient budgets that are not in line with the real economic situation have resulted in a shortfall in public hospitals, leading to a shortage of professionals and falling quality of service, despite the BT260bn ($8.29bn) budget that was set aside in 2011, which includes BT91.9bn ($2.93bn) directly to the MoPH. On current trends, the National Economic and Social Development Board forecast that budget requirements will reach some BT592bn ($18.88bn) by 2028.
Inequalities in access to quality care have also been exacerbated by different pricing structures operating under the three welfare schemes that enable hospitals to charge double for treatments under both the SHI and CSMB schemes than on the UCS.
FINANCIAL WOES: Issues in financing have also led WHO to express concern over cost-saving mechanisms implemented by the National Health Security Office (NHSO), mandated to provide drugs and resources for the universal health care (UHC) scheme, that have created conflicts with the MoPH. “Thailand’s procurement regulations that require public hospitals to purchase their medicines and medical supplies from the state-owned Government Pharmaceutical Organisation can prevent public hospitals and patients from gaining access to certain life-saving medicines,” Dr Kitima Yuthavong, the CEO of Thailand’s Pharmaceutical Research and Manufacturers Association’s, told OBG.
Dr Prachumporn Booncharoen, president of the Thai Federation of Medical Centre and General Hospital’s Doctors told the 2011 Thailand Healthcare Summit, “The NHSO’s responsibilities should be in monitoring and maintaining quality standards and outcomes, rather than total control of budget and purchasing of medical equipment and medicines.” Hospitals, the vanguard of the UHC scheme, bear the brunt of these issues.
LABOUR SHORTFALLS: The proliferation of private hospitals in Thailand has occurred with government support over the past decade. The government rescued the industry following its collapse in 1997, promoting the nation as a medical tourism centre. Yet growth in the private sector has exacerbated shortfalls in the Thai public health system that have had cascading ramifications in health care, resources and maybe even Thailand’s future competitiveness.
Foremost is a shortage of skilled personnel. Thailand has three physicians per 10,000 people, one of the lowest rates for a developed health system. This falls well behind Malaysia, which has 9.4 doctors per 10,000 people and Singapore with 18.3. Thailand is also below the regional average of 5.4. The picture is slightly brighter when it comes to nurses, where Thailand comes in above the regional average of 13.3 per 10,000, but continues to trail far behind Malaysia’s 27.3 and Singapore’s 59. Moreover, both professions are rapidly leaving the public sector’s overburdened hospitals.
Public physicians have starting salaries of BT40,000 ($1276), which have been surpassed by 8-10 times in the private sector. This has resulted in an exodus of skilled personnel to the private sector, where they also enjoy improved workplace education opportunities, hospital management and work conditions.
From 2001 to 2003 the MoPH reported that the public sector lost 74.6% of its physicians, which contributed to a 12,000-doctor shortfall of the optimal WHO requirement in 2006. The World Bank estimated 21.6% of doctors were already employed in the private sector in 2008, although MOPH estimates in 2010 were 17.9%. “We need to balance the number of physicians working in private and state hospitals,” Dr Somchai Pinyo Phonpanich, the director-general of the Health Service Support Department, told local media in 2012. While public sector doctors are considered civil servants who enjoy numerous benefits including membership of the CSMB, moonlighting remains common practice and staffing shortfalls have only increased.
Public sector nurses, facing low pay, poor work conditions and little opportunity for advancement, are also heading for the private sector. It is expected that Thailand will need double the number of nurses working in the industry in the next decade, a common problem for both the public and private sector, which are anticipating a crisis point within the decade. Hospital executives told OBG they anticipate an inflationary wage hike by 2017 as supply and demand ratios reach critical levels. Unless the incentives hospital administrators are rolling out to nursing personnel gain more purchase, a further exodus is expected once borders open to skilled workers under the AEC.
Although Bangkok’s Yanhee Hospital, which specialises in cosmetic surgeries, has recruited nurses from the Philippines, efforts to attract and retain foreign doctors and nurses have been hampered by required Thai language-format exams. The Medical Council of Thailand (MCT) is working to increase the output of 1500 doctors per annum, but the private sector is moving on its own to secure personnel for their operations.
BUILDING A LABOUR FORCE: Market leader Bangkok Dusit Medical Services (BDMS), which has shares in 28 hospitals and 14.6% of the national market, has established exchange programmes with medical and nursing schools in Australia and the Philippines. It also signed partnerships with Burapha University’s Faculty of Medicine to train physicians and Srinakharinwirot University’s Faculty of Medicine to open an international course for medical students, a move endorsed by the MCT and MoPH. This is a significant departure from previous industry practice, wherein private hospitals have remained non-teaching institutions.
BDMS director and executive adviser Dr Pongsak Viddayakorn told local media in 2012, “[Medical schools] are trying to keep their physicians and personnel to work with them, but cannot afford to pay their monthly salaries as private hospitals can.” It is an inevitable scenario facing Thailand’s health sector, but one that should be embraced rather than resisted said Dr Charkrit Souksakit, the CEO and managing director of Vejthani Hospital. “Private hospitals are always seen as a threat to the public hospitals, but they should be seen as complementary players in the market.”
The Ministry of Finance’s permanent secretary representative Kulit Sombatsiri announced at the 2011 Thailand Healthcare Summit, “the private sector will have more roles to provide health services and there is a possibility to allow the private sector to participate in management of civil servant’s medical benefits,” mechanisms to do so remain inchoate. Yet recent developments demonstrate that public hospitals have newly embraced the private business model.
PRIVATE-PUBLIC PARTNERSHIPS: Public hospitals are beginning to open private facilities to offer patients alternatives to private sector hospitals and to provide a critical source of revenue that can be reinvested in public facilities. In a significant public statement endorsing this policy, Siriraj Hospital, which has been caring for Thailand’s revered yet ailing octogenarian king since 2009, opened the BT9bn ($287.1m) Siriraj Piyamaharajkarun Hospital (SiPH) in April 2012.
With treatments costing 20-25% less than private hospitals, SiPH will share 800 physicians with its public partner. There are 284 inpatient and 177 outpatient rooms, 17 operating theatres, 61 intensive care units, and it is anticipated to reach profitability in 8-9 years.
By supporting this move, the government also acknowledges that public health care facilities are unable to cope with the burdens of the UCS against crippling competition from the private sector. However, the impact of such ventures remains contested. Many private sector executives believe this could be an effective means of reducing the public sector exodus, but noted the quality will remain below those maintained by private hospitals and conjoined facilities could create tensions over resources and business models. While Siriraj’s private sector entrance is perhaps the most prominent, similar moves are being considered nationwide, particularly in upcountry areas where private hospitals have yet to make inroads and public district and provincial hospitals dominate.
With low private health insurance penetration, the average insured patient with a co-payment is just 20-40% of the market, and there are concerns that Thailand’s lower- and middle-classes are being trapped between overcrowded, resource-poor public hospitals and unaffordable private facilities. Talks to reform UCS to enable further co-payment, relieving some of the hospitals’ burdens, remain in the initial phases.
ACCREDITATION: Thailand’s 400 private hospitals are required to obtain certification from a public body, the Healthcare Accreditation Institute. While stringently applied to private hospitals, industry reports show that looser standards are applied to public hospitals. Industry executives said benchmarks are skewed downwards to accommodate public sector institutions, and standards are unequally applied to private hospitals.
As Thailand’s medical credentials gather international credibility, hospitals have sought alternative accreditations, notably the international standard of the Joint Commission International. Bumrungrad International Hospital, the first in Asia to receive international accreditation in 2001, is now joined by 17 others pursuing independent verification of standards and investments in their structures, processes and people. As the private health care market becomes increasingly crowded, such accreditations are of growing importance to the domestic demographic.
SECTOR TRENDS: The domestic market is growing and a continued rise is expected. Improving economic fortunes have also meant greater disbursements on health care, equivalent to 4.3% of GDP in 2009, although when adjusted for purchasing power, Thailand’s per capita health expenditure is an estimated $345, according to the 2011 “Good Health at Low Cost” report.
Indeed, the emerging trends for treatments in the health care sector are symptomatic of an increasingly prosperous elderly population. Non-communicable diseases account for 55% of deaths, according to the WHO, against a regional average of 36%. Obesity in both men and women is roughly three times the regional average, and concerns over tobacco and alcohol use have inspired draconian, yet largely placebic, measures by public watchdogs to curtail consumption.
Reflected in a growing over-the-counter pharmaceuticals market for cardiovascular, gastrointestinal and orthopaedic medicines, hospitals are aligning their treatments with demand. A reported 80% of Bangkok Nursing Home hospital patients were treated for age-related health issues over 2010/11 and Bumrungrad Hospital launched a promotion campaign in 2011 focused on highly specialised and complex procedures including cardiology, oncology, neurology, neuro-surgery and orthopaedic treatments. Testifying to the reality of Thailand’s demographic needs across the public and private sectors, SiPH also promoted its own five specialist clinics in oncology, cardiopathia, orthopaedics, gastroenterology and nephropathy.
With an estimated 24% share of the domestic health care market, the private sector is undergoing a period of consolidation. Adjusting to Thailand’s emerging demographic of a large, wealthy elderly population that is dictating changes to market demands and treatments, hospital groups have been eyeing mergers to bring together a wider spectrum of specialisations.
CONSOLIDATION: Rather than focus on attracting top talent, the struggle to find and retain specialised physicians has encouraged other market players to pursue mergers and acquisitions as a means of expansion, led most notably by BDMS. Its rapid-fire succession of expansions over 2010-11 took the market by surprise, raising concerns over an emerging monopoly. Already the largest private hospital operator in Thailand in terms of revenues from patient services and market capitalisation BDMS has controlling shares in the Bangkok Hospital Group and Samitivej Group.
Its December 2010 $315m acquisition of the Health Network Group, owners of eight hospitals under the Phyathai and Paolo Memorial Hospital brands, elevated BDMS to the second-largest Asia-Pacific group outside of Japan. In February 2011 it made a $91bn, 11% stake purchase in Bumrungrad Hospital that it increased to 20.28% in early 2012. BDMS has since become the largest shareholder in Thailand’s most famous private hospital and jewel of the medical tourism industry.
With BDMS having quadrupled its market value in just 30 months, analysts at KGI Securities anticipate it will make another purchase in 2012. A key contender is the 300-bed Ramkhamhaeng Hospital, in which BDMS already has a 38.2% share. If successful, this would give BDMS control over approximately 5500 beds nationwide, and would be just a few hundred short of holding 26% of beds in Bangkok.
While BDMS is unrivalled, its business model remains popular, with expansions focused on acquisition rather than greenfield developments. Diversification of assets across Thailand’s provinces, regions and markets is evident at much smaller scales across the sector, expanding to under-served areas of the market.
In an interview with OBG, Phyathai Hospital Group and Paolo Memorial Hospital Group chairman Wichai Thontang reported 10-11% growth among its eight hospitals that cater to the high-end and mid-tier domestic demographics. This growth rate is unchanged since the group’s merger with BDMS, and is anticipated to remain a core area of business for the organisation.
Mergers have also been exploited to leverage greater economies of scale in upgrading and purchasing of equipment, notably information technology, becoming ever more important for medical treatment, that Wichai reported now constitutes half of their budget items.
MEDICAL TOURISM: Consolidated private hospital groups are expected to benefit from the growing medical tourism market, which has long played an important role in the sector. South-east Asia, and Thailand in particular, is expected to command a controlling share of the growing global medical market, which is predicted to top $100bn in 2012 at a 10-20% annual growth rate. An estimated 4.3m medical tourists visited Asia in 2010 and the figure is expected to grow to 5.6m in 2012, generating revenues of $9.1bn. With government support behind the sector, Thailand enjoyed a rise in foreign business, with the number of medical tourists booking into Thai hospitals rising from 973,000 in 2003 to 1.4m in 2009 and hitting 1.6m in 2011.
Backed by an estimated BT3bn ($95.7m) of government funding to promote Thailand as a medical centre, the country remains on track to make BT400bn ($12.76bn) in revenue by 2014. International visitor spending is reportedly 1.9 times more than that of Thai patients, delivering a disproportionate revenue stream to private hospitals, which, under the Foreign Business Act, largely precludes foreign ownership. Leading medical tourism hospital Bumrungrad reported 60% of its revenues came from 40% international patients in 2011. International arrivals now constitute some 50% of patients at Vejthani Hospital. Charkrit told OBG, “Hospitals need to enter the international market to survive. They cannot survive off the domestic market alone.”
Previously one of Thailand’s leading source of patients, the US market has suffered from the effects of the global financial crisis and has yet to recover to pre-crisis levels. However, Middle Eastern, South-east Asian and East Asian markets have provided viable revenue streams that hospitals have cultivated through commission-based systems with Thai doctors, international agents and some insurance companies. However, most medical tourists continue to pay for services in cash.
While international accreditation remains important to marketing, hospitals have more recently engaged in a medical technology race. Keen to emphasise that such technology remains but a tool for medical professionals, hospital executives admit that substantial investments have been necessary to cultivate market confidence and attract international business. Nonetheless, Thailand’s reputation for providing a comfortable lifestyle for expatriates has fostered a burgeoning immigrant population and welcomed some 500,000 medical visitors from abroad, bringing in good business.
OUTLOOK: Thailand’s health care system remains one of the its great success stories, yet the sector continues to face major funding and human capital shortfalls. This has facilitated the growth of the private sector over the past decade, which has both plugged gaps in the market and exacerbated issues within the public sector. Reform of public health insurance systems that would help address some of these problems have made little progress so far, facing entrenched vested interests among some sector players.
At the same time, however, economic development has cultivated a rapidly rising middle- and high-end domestic market. Evolving demographics are altering the demands placed upon health care services, presenting new market opportunities for specialist providers and pharmaceuticals firms. Consolidation in the private sector and the introduction of for-profit public facilities should help the sector meet the growing demands from both the domestic and international market, providing strong opportunities for further expansion.
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