Market is expected to grow at 5%-7% annually, despite shifts in demand
TRIS Rating expects the private sector segment of the healthcare services industry in Thailand will grow by 5%-7% per annum over the next three years. Two factors are driving the growth: an aging population, and increased demand from patients in neighboring countries which offsets a slowdown in demand from patients from Middle East (ME) countries.
Going forward, we expect to see fewer mergers and acquisitions (M&A) in the industry. Healthcare services companies are expected to focus more on organic growth by upgrading the services offered and increasing bed occupancy rates. Due to the rising cost of medical treatment and longer life expectancies, private health insurance coverage is expected to rise. This rise is a long-term growth opportunity for private hospitals.
Shifts in demand
For many years, patients from ME countries had been the major group of foreign patients seeking medical treatment in Thailand. However, the sharp drop in oil prices in 2015 had caused the slower growth in demand from those countries. Thus, revenue from foreign patients continues to grow but at a slower rate. According to the combined revenues of the two largest private hospital operators, Bangkok Dusit Medical Services PLC (BDMS) and Bumrungrad Hospital PLC (BH), revenues from foreign patients grew by about 6% per year during 2016 and 2017, down from around 11% annually during 2013-2015. The mix of patients has shifted. Revenues from patients from Cambodia, Laos, Myanmar, and Vietnam (CLMV) outpaced revenues from patients from Middle East countries since 2016.
Private hospitals to focus on upgrading their services
TRIS Rating expects private hospitals to focus on organic growth. M&A are expected to continue but will not be of the size observed over the past 10 years. Large hospital operators are upgrading the services offered and improving the utilization rates of their existing facilities.
The limited number of skilled medical staff limits the expansion plans of private hospitals in Thailand. According to the World Health Organization (WHO), the number of physicians and nurses in Thailand in 2015 stood at 0.47 doctors and 2.294 nurses per 1,000 people, far below the levels in developed countries like the US, Germany, and Singapore. These nations have more than two doctors per 1,000 people. Currently, Thailand can produce around 3,000 doctors per year. Thus, it will take more than 10 years to have at least one physician per 1,000 people.
Insurance companies to play a major role
TRIS Rating expects private health insurance companies will play an increasingly important role in Thailand healthcare industry. Congestion and long waiting times at public hospitals has driven patients in the middle to high income segment to private hospitals. However, the cost of health care services is expected to rise by 3%-5% per annum. As a result, people are turning to private health insurance as a means to help pay health care expenses. This trend will accelerate in the future. Revenues of BDMS and BH, when broken down by payer, show that the share of payments received from insurance companies has been rising. For BDMS, the portion of revenues from insurance companies was 23.3% of total operating revenues in 2017, up from 15.3% in 2012. Revenue from insurance companies accounted for 13.8% of total operating revenues at BH in 2017, up from 11.9% in 2012.
MARKET RECAP
The private hospitals segment of the healthcare services industry has grown steadily over the past 10 years. Demand for healthcare has risen from medical tourists and a more aged population. Thailand has become an aging society in 2016: the population aged 65 or more years old accounted for more than 10% of the total population. Over the next five or six years, Thailand will become an aged society, meaning the population aged 65 or more will exceed 14% of the total population.
Demand from medical tourists has also continued to rise. Revenues from foreign patients made up more than 20% of the combined revenue of 21 companies listed in the Stock Exchange of Thailand (SET) in 2017. Currently, 45 hospitals in Thailand have been accredited by the Joint Commission International (JCI). This is the highest number of accredited hospital in a nation in Asia (excluding China). Accreditation implies that the quality of service at Thai hospitals is comparable with international standards. Foreign patients are thus confident in the quality of the care they receive at Thai private hospitals. In addition, the prices for treatment in Thailand are much lower than in developed countries like the US, European countries, or Singapore.
Geopolitical issues have driven ME patients to seek treatment less in the Western countries and more in countries in Asia. However, a sharp drop in oil prices in 2015 caused several ME countries to cut healthcare spending, especially for treatments outside their countries. Large hospitals, like BH and BDMS, now must place a greater focus on local patients and patients from other countries. Demand from patients in China and other countries in Southeast Asia, especially the CLMV countries, have increased lately. As incomes rise in those nations, demand for better quality medical services is rising. However, the supply of good quality medical services remains limited. The rising demand from patients in neighboring countries will boost revenue at Thai private hospitals.
MARKET OUTLOOK
TRIS Rating believes that the private hospital segment has good growth prospects over the next three to five years. An aging population, plus increasing demand from neighboring countries, will drive growth. However, growth may be lower than expected due to the limited supply of skilled medical professionals and more intense competition. As the cost of healthcare services continue to rise, we expect health insurance companies to play an increasingly influential role in the Thai healthcare industry.
Key positive factors:
• Rising demand from patients from neighboring countries. More patients from neighboring countries, especially Cambodia and Myanmar, have offset in part a drop in the growth in the number of patients from ME countries. Based on the combined revenues of BDMS and BH, revenues from patients from CLMV countries exceeded revenues from patients from Middle East countries since 2016. Total foreign patient revenues is still growing but at a slower rate. Revenues from foreign patients grew by about 6% per year during 2016 and 2017, down from around 11% annually during 2013-2015. According to the combined number of foreign outpatients of the two largest private hospital operators, Bangkok Dusit Medical Services PLC (BDMS) and Bumrungrad Hospital PLC (BH), the number of foreign outpatient visits grew by about 3% in 2017, down from 7%-8% during 2014-2016. The total number of inpatient days (no. of admissions * length of stay) dropped by 1% in 2016 and grew by only 2% in 2017.
• Aging population. Domestic demand is expected to grow as the population ages. The National Economic and Social Development Board (NESDB) expects the population aged 60 years or more will increase to 10.3 million in 2019, from 9.1 million in 2017, a rise of around 6.5% per year. Healthcare expenditures by the elderly (aged more than 70 years old) will increase by almost 4 times, from Bt63,000 million in 2010 (2.1% of GDP, 11.8% of total expenditures on healthcare) to Bt228,000 million in 2022. According to data from the NESDB, expenditures on healthcare services for both the private sector and the public sector in 2016 was Bt786,502 million. The government budget for healthcare was only Bt276,253 million.
• Health insurance segment will grow. Due to the advances in medical treatments, people are living longer than before. However, the numbers of patients with chronic non-communicable diseases (NCD) e.g. diabetes, cancer, heart disease, or hypertension, are also rising. Thus, the cost of health care services are expected to grow as people age. As a result, people are looking to private health insurance to help pay healthcare expenses in the future. We expect private health insurance companies to have an increasingly important role in the industry, just as in developed economies. Based on the combined revenue of BDMS and BH, revenue from health insurance companies has grown over time. The portion of revenue from insurance companies grew to 23% of total hospital revenues in 2017, up from 15% in 2012.
Key challenges:
• Limited availability of skilled healthcare professionals. The number of newly graduated physicians and nurses has increased every year. Despite the rise, the number of physicians per 1,000 people in Thailand is still far below than that of developed countries. According to the WHO’s Global Health Workforce Statistics, the number of physicians and nurses in Thailand in 2015 stood at 0.47 doctors and 2.294 nurses per 1,000 people. Currently, Thailand can produce around 3,000 physicians per year. Thus, it will take more than 10 years to have at least one physician per 1,000 people. Due to the limit number of skilled medical professionals, we expect private hospitals to focus on upgrading their services and improving the occupancy rates of their existing hospitals.
• Competition from both Thai and foreign private hospital operators. As the industry becomes consolidates, competition will intensify between a few groups of hospital operators, e.g. Bangkok Hospital Group, Bangkok Chain Hospital Group, Thonburi Healthcare Group. However, Thai private hospitals operators, when trying to attract foreign patients, have to compete not only with local operators but also with private hospitals in Singapore, Malaysia, India, and some ME countries. Malaysian firm, IHH Healthcare, is building a 250-bed hospital in Myanmar, Qatar opened Hamad Medical Corporations’s new 557-bed Medical City complex in 2017, Kuwait opened a 1,168-bed Jaber Al-Ahmad hospital in October 2018, and KPJ Healthcare Berhad (Malaysia) is expanding to Indonesia. Dubai and Abu Dhabi aim to be medical tourism destinations. Dubai and Abu Dhabi were ranked as the 22nd and 31st most popular medical tourism destinations in the world during 2016 (Source: Medical Tourism Index 2016). Dubai aims to attract over 500,000 medical tourists by 2020. According to the Medical Tourism Index report, the Thailand medical tourism industry ranked 6th in 2016. The expansion of healthcare services in ME countries will affect not only on the number of ME patients coming to Thailand but also the number of other foreign patients seeking for treatment outside their countries.
CHANGES IN RATING/OUTLOOK
In 2017, TRIS Rating affirmed the ratings of the three rated hospital operators: BDMS, BH, and BCH. We expect the operating performances of all three companies to grow steadily as demand rises and revenue intensity increases. Since we expect no significant M&A activity in the industry, the rating changes will be driven by operating results and the ability to control costs.
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