End of outbound medical tourism benefits Indonesian hospitals

Some 1.2 million Indonesians travel to neighbouring countries every year for health checkups and other medical services.
Some 1.2 million Indonesians travel to neighbouring countries every year for health checkups and other medical services.PHOTO: AFP

JAKARTA (BLOOMBERG) - As Indonesia's borders stay shut for a year and counting, people who used to travel overseas for medical treatment are turning to local hospitals.

"More and more cancer patients are showing up at the hospital that I went to," said Ms Edyth Chatrina, a lawyer who took her 76-year old mother for lung cancer treatment at a Jakarta clinic run by PT Siloam International Hospitals. "Nearly all of them were being treated in Singapore before the pandemic."

Some 1.2 million Indonesians travel to neighbouring countries every year for health checkups and other medical services, according to Mr Matt Zafra, Principal and Head of Asia Pacific Health and Life Sciences at consulting firm Oliver Wyman.

They collectively spend US$2 billion (S$2.65 billion) annually on treatments and account for more than half of medical tourists in Malaysia and Singapore, Mr Zafra wrote in an email.

While foreign patient visits for IHH Healthcare Bhd, which runs Mount Elizabeth Hospital in Singapore and Gleneagles Hospital in Malaysia, declined during the pandemic, Siloam is expecting a record 25 per cent margin for earnings before interest, tax, depreciation and amortisation in 2021.

That forecast from Chief Financial Officer Daniel Phua is higher than the consensus analyst estimate for Ebitda margin of 18.7 per cent for the full year, according to Bloomberg data.

Siloam's stock has jumped 67 per cent in April and is set for its biggest monthly gain after the company posted 165 billion rupiah (S$15.2 million) record profit in the fourth quarter.

That compares with 1.8 per cent gain for Singapore-based rival Raffles Medical Group while IHH Healthcare Bhd, South-east Asia's largest-listed healthcare company by revenue, gained 1.3 per cent over the same period.

Local peers PT Mitra Keluarga Karyasehat fell 0.8 per cent and PT Medikaloka Hermina added 2.2 per cent so far this month.

"We expect ongoing shorter-term challenges from the pandemic," said Mr Kelvin Loh, managing director of IHH Healthcare. He didn't quantify the business impact of the drop in foreign patients, but said local patients recorded a steady recovery in the second half of 2020.

Ms Chatrina's mother herself used to be treated at Mount Miriam Hospital in Penang, Malaysia, before the pandemic led to shut borders. Her doctor then referred her to Siloam's cancer specialist clinic in Jakarta to continue her therapy.

Wealthier Indonesians prefer overseas treatments due to a "lack of trust in the local system and infrastructure" as well as a shortage of health facilities and medical talent onshore, according to Oliver Wyman's report in 2018.

The pandemic has given Indonesian hospitals a "once in a lifetime opportunity" to prove their quality of care, said Mr David Arie Hartono, analyst at Korea Investment & Securities in Jakarta. A resumption of international travel, which could happen as early as the second half of 2021, will put that to the test.

"The Indonesian hospital industry can show their customers what they can offer to the patients," Mr Hartono said. "If they can prove themselves, they can retain these patients and prevent them from seeking treatments abroad."