Primed for health: Investment opportunities in health care

Luke Pais (Luke)

Welcome back to Money Multiple, where we explore trends, topics and pathways for private capital investors in Asia to deploy capital and maximize returns. 

Southeast Asia is a region that is experiencing rapid growth both in terms of population and economic development. As a result, the demand for health care services is growing rapidly. There are a number of key trends that are shaping the health care landscape in Southeast Asia. These include a population demographic that is gradually aging in the 2020s but will age more rapidly as we get into the next decade, placing a far greater demand on health care systems. There’s a rise in chronic diseases such as heart disease, stroke, diabetes and cancer. As a result, there is a growing need for preventive care and treatment of chronic diseases. There is an increasing use of technology in health care. Telehealth, for example, is becoming more popular due to its convenience as well as the ability to deliver health care in rural areas. 

With an increasing burden on governments and the ever-increasing demand for quality health care, the private sector is growing rapidly in Southeast Asia to fill the gap. Private capital can play a major role in the development of the health care sector in the region as well as in public-private partnerships.

To navigate this interesting topic, I’m pleased to be joined by Dr. Loke Wai Chiong, Program Lead at Singapore’s Ministry of Health Office for Healthcare Transformation, and Abhay Bangi, EY Asean Health Care and Life Sciences Leader. 

Abhay, let’s start with you. Can you take us through how the global health care landscape has evolved post-pandemic, and what are the broad implications for the industry?

Abhay Bangi (Abhay)

Sure, Luke. There are maybe a couple of trends that we’re observing. The first is around increasing awareness and consumerism in health care. What I mean by that is, people are now looking at prevention. They’re looking at regular checkups, increased diagnostics – all of these is creating a lot of demand for health care services. We’re seeing that growth rates are obviously a lot higher now compared to pre-pandemic, and as a result we’re expecting not just tertiary care but also primary care and secondary care investments and expenditure to increase going forward. 

The second trend we’re observing is around technology adoption. Here we’re obviously seeing both physicians and consumers adopt technology to look at virtual care but also hyper-personalization. This has resulted in evolving models of care. Some people will argue that models of care and technology advancement are two different things, but I see them as at an intersection of how things are shaping up. 

The third is the shortage of health care workers. I think COVID-19 pandemic has made a bad situation even worse – a lot of people have gone into early retirement, and they’ve changed their profession. As a result, the shortage of workers has now become even more acute which means hospital operators have to now look at ways to become more productive and efficient. The WHO (World Health Organization) estimates that 30% of the resources spent on health care are actually wasted. So, there’s a lot of opportunity for us to address that. We see players looking at this through the pandemic and also post-pandemic.

Luke:

Dr. Loke?

Dr. Loke Wai Chiong (Dr. Loke):

This is an interesting question because what has changed through COVID-19 pandemic and now we’re post-COVID, from a health care transformation point of view, is the awareness now – governments, providers and even citizens alike – it’s not just about non-communicable diseases. For many years, we were tackling diabetes, hypertension, hyperlipidemia, heart disease, but communicable disease is back. We thought we had polio wiped out. We’ve managed to solve malaria in most countries. But now, there’s COVID-19, and it’s worldwide. Now we’re thinking about the next pandemic or “Disease X” as some people call it. I think this attention towards the full spectrum of disease and issues that might hit humanity is going to be there. I think all health care systems will prepare for both the non-communicable disease as well as the communicable disease, on both ends. 

I think the other thing, especially as Abhay mentioned, is that the whole post-COVID or COVID experience has brought up and accelerated the adoption of telemedicine, data and IT and technology adoption. It was really “no choice” – people were forced in a lockdown period to seek care or receive care remotely. So that has really accelerated adoption and so we have seen massive adoption of this, and new business models have come up because of that.

The use of IT and technology was also very interesting because they determined the success of COVID measures: contact tracing, planning for vaccination, even lockdowns, learning how to do that at the population level. Now those have opened doors for data sharing between agencies, between government agencies, and this will carry forward and will help in many of the things we’ll do for population health. 

I think we will see new models of care. We are thinking now that beyond just high-cost facilities, tertiary hospitals where actually diseases could spread very fast, we need to focus more on lower-cost upstream, non-acute settings and decentralized health care. In Singapore, we call it “beyond hospitals to community” and maybe “community to homes”. I think more and more so, we will see business models or new care models around this trend of moving beyond hospitals into community.

Abhay:

Thanks, Dr. Loke. If you get to the Southeast Asian landscape, Southeast Asia has many countries, each of them with different levels of evolution, each of them operating at a different pace. Can you take us through some of the key trends and implications for operators in our region based on some of the topics you just covered?

Players in the region, for the longest time, have benefited from this demand-supply mismatch, for example, the shortage of operational beds. As a result, they have enjoyed very healthy operating margins. But both pre-pandemic and during COVID, we’ve seen an increase in institutional investment. It’s improved the stock of beds, but equally, it’s intensified competition. Now if you combine the trends that we spoke about and this intensifying competition, it’s very clear for a lot of the operators that they need to strengthen their fundamental building blocks to the business. 

A couple of areas we see players starting to get focused on – the first is improving doctor engagement. I think historically, they have not adopted a rigorous means to building that relationship with the doctors. I think that is definitely an area of focus going forward. Combined with that, they’re now also looking at tracking their clinical KPIs as a means of improving both patient outcomes as well as experience for the patients. The last is the chronic underinvestment in IT and technology that’s happened within this sector, that has to be addressed. Dr. Loke alluded to beyond hospital and if you need to look at those models of care, technology plays a very important role. Hence, we will see both modernization efforts but equally an opportunity for hospital systems to get smarter and interconnected with a lot of new tech investment that will, and should, go into this space.

Dr. Loke:

If I may just add, Luke, I think that in Southeast Asia, we have a huge variation in terms of the maturity of health care systems, as well as the use of technology, the modernity of hospitals, and so on and so forth. But there are some common observations, that there is a trend now to see the importance of nearshoring and in-sourcing rather than expecting things to be imported in, or for your patients to go overseas for treatment, for instance. So, I see many countries, which in the past would be net exporters of medical tourism for instance, are now building higher quality facilities in-country, because with the pandemic or surfacing, with borders closing, with supply chain shocks, and all that – it’s better to nearshore and in-source most of this in-country. So, these are the trends and it seems to be a bit of greater interest even in governments, to ensure this happens and policies are changing in that respect to encourage more nearshoring in that sense. I think that will be an interesting trend to watch.

Luke:

Dr. Loke, with health care now being top of mind for the population across the region, could you also elaborate how universal health care has evolved and how do you expect it to evolve in the near term?

Dr. Loke:

Universal health care is very much part of the whole sustainable development goals, which is also a very big thing now in ESG (environmental, social and governance), and all investors are very concerned about ESG compliance and all. But I think pre-COVID, certainly, universal health care has advanced and improved over many years in terms of focus on non-communicable disease, access to care, and also primary care development, especially in the lower-income countries. 

I think post-COVID, we are now recognizing there are cracks in the system. Inequalities exist not just between poor and rich countries for instance, but even in country, in cities where poorer areas of the city have a higher incidence of spread of disease because they’re crowded together, and because of lower access to health care facilities. Essential workers working in these settings also have higher mortality rates, for instance. I think it will become increasingly important especially in urban settings, to make sure that we tackle inequalities in terms of access to care even in country and not just talk broadly about poorer countries having to do this and richer countries not having to do that.

I think more and more, investors are also thinking that countries focused on universal health care now are also thinking about pandemic preparedness. Again, there seem to be dichotomy or a distraction from each other, but in fact, they focus on different things. But we have to move toward a future where both have to be focused on and both built up together to be prepared for the next pandemic “X”, but also to really change lifestyles and behaviors so that we deal with the slower but inevitable pandemic of chronic diseases.

Luke:

Thanks, Dr. Loke. I think that sets the tone quite nicely for the next topic that I want to cover. Maybe Abhay, let me come back to you on this. Can you take us through some of the key investment themes that private capital investors in Southeast Asia should focus on, and if you can contrast this between developed and developing markets?

Abhay:

There are different archetypes of assets that cater to the health care needs of the population. If you look at this globally, especially in the Western world, beyond tertiary care facilities there is also ambulatory care, single specialty hospitals, network of GP (general practitioner) clinics and specialist clinics – all of them cater to health care needs. But for whatever reason, in our neck of the woods, we’ve seen that tertiary care hospitals are the destination for people who need care most, and as a result, we haven’t seen other formats exist in the past. All of the available capital has changed; very few groups that have essentially organized these large tertiary care hospitals into a network, which consequently means that their valuations have gone up. Now, rightly or wrongly, many of them have attracted capital at very high valuation multiples. 

There is probably an opportunity for investors to diversify and look at those other asset classes and maybe find opportunities to roll up, scale up, and invest in these secondary facilities, ambulatory care facilities, single specialty hospitals and clinics, going forward.

Dr. Loke:

From the Singapore perspective, I would say that, again, Singapore is a standout in terms of being more advanced and more developed than our surrounding neighbors in Southeast Asia. But the themes that I’m seeing in Singapore have a lot to do with our new focus, our refreshed focus on primary care and prevention, on population health, and on capitation financing.

In primary care, for instance, the current focus in Singapore is to get everyone enrolled to his or her own personal family doctor, to have all-rounded support for a healthier lifestyle in the community and also to be empowered to take care of his or her own health. But this will require enablers. We’re seeing technology as an enabler but also data financing, rethinking the workforce, dealing with shortages around the world. But how do you rethink of the workforce and redesign jobs in health care? By empowering self-care and self-management. So, the rise of apps, wearables, where residents or citizens are encouraged to take care of their own health even before they’re sick, will come up a lot under primary care. 

I think in terms of population health, it’s interesting because if we think about lifespan and everyone in the population, what’s important here is to divide up geographically where people stay, and putting funding and accountability onto regional health managers and other health care clusters. So, by putting the accountability there, they also have the mandate to reorganize or organize care and design it and plan it accordingly to take care of every resident, from womb to tomb. So, I think that’s going to be a big thing coming up, and again, the enablers underlying that will be interesting to watch.

In terms of the way health care is financed, we see health care financing and capitation financing as almost like the epitome of value-based health care because we are now saying that a certain amount is given for the provider, for the whole life course of a particular person staying in his area. So in that sense then, it’s up to the provider to organize both preventive primary care as well as acute care for that resident, and so in the process be able to improve the care and the health of the residents but at the same time also lower cost throughout the whole life course. So, I think these three trends, in Singapore especially, will be well worth watching. It’s still evolving. Many things are moving, but I think it’s very exciting.

Luke:

Thanks, Dr. Loke. Maybe I just wanted to shift gear to the topic of cost and margins. Now, clearly over the last couple of years, margins have been under pressure. Today we are in a highly cost-inflationary environment. What should operators in the region be thinking about to protect and how to improve their margins?

Abhay:

There’s always a need to balance the objective of staying economically viable versus providing quality care, and I think it’s more important for health care operators rather than any other sort of business as such. There are very few levers to be honest, that health care operators can use to improve margins. 

The first is to try and optimize their material spend, which is essentially look at what is the investment going into – drugs and consumables – and finding ways to reduce that to best-in-class levels, which is, there are players who spend about 20% of their revenue on it. If you can get anywhere close to that then there is a way to improve your margins. There are a number of ways of doing this – you can look at standardizing your formulary, looking at substituting some of the products, but there are definitely ways and means of doing that.

The second lever is to look at the staff cost, which is another big cost bucket. Here again, they need to balance the current challenge of shortage in the workforce and also look at improving productivity, and staffing ratios are potentially one way to do this. Also, looking at the amount of non-value-added work that clinical workforce ends up doing that can be reduced by automation or can be reduced by realigning the responsibilities between clinical workforce versus ancillary workforce, and some investment in technology. So, there are a number of ways of improving productivity and thereby reducing the burden on the workforce as well as the workforce cost itself. 

The third is an indirect way to doing this. Health care business is a high operating leverage business. So, the more you improve throughput, i.e., bed occupancy rates or reduce average length of stay, it has a positive correlation to margins. We see a lot of players now getting smarter in how they position their hospitals with respect to specific payer groups and also their investment in specialties. Whether it is a Cardiovascular Center of Excellence or an Oncology Center of Excellence, they are positioning themselves specifically with regard to their capabilities in those areas to specific payer groups. I think that’s definitely helping them improve occupancy as a result, and like I said, that has a correlation to margins.

Luke:

Are there any lessons that the private sector can take from the public sector?

Abhay:

Definitely. The public sector, given the scale of operations, has gone through a lot, historically. I think the one big learning and especially in the Singapore environment, what the different clusters have done since 2015 or even earlier, is the focus on value-driven outcomes. Certainly, that is an area that private health care operators need to invest in for two reasons. One, to naturally provide better quality of care to the patients, but also to be able to track and make the right intervention. So, there is a correlation to value, and historically, it hasn’t been done in this part of the world, and we’ve seen at least a few public health care systems, like Singapore, invest in it and reap rewards. Again, that’s probably an area that the private players can adopt and learn from. There are many others, and this, in particular, stands out for me.

Dr. Loke:

If I can just add on to the point on what operators can do to improve the way they work, I think very importantly during this time is to look after the mental well-being of their workers. We are facing acute shortages across the whole health care sector, mainly with nurses especially, but also doctors and other allied health professionals. This is post-pandemic and I think part of it is due to the lockdowns, the kind of burnout faced by the workforce and many have left the profession totally. 

I think just looking at that and making sure to retain talent, engage staff and pay attention to all these factors in terms of how it leads to staff turnover and attrition, is going to be important. There’s a saying “go beyond the triple aim to the quadruple aim” – better care, better health, lower the cost but also with more meaning or joy at work. I think that’s the challenge of both public and private sector operators alike.

In terms of whether private sector can learn from public sector, I thought the interesting point was to recognize how local governments and payers are thinking in terms of how they want to, what are the pressures on them (whether to lower costs, to improve quality, to improve safety of their systems) and be able to see whether you can fit or find the business models that can fit into that kind of trend. It could be very local, these trends, and the priorities of different governments to do different things at different times in their history or journey will be different. So, I think it’s important for investors and providers in the private sector to know other priorities at that time and be able to ride that wave. For instance, telemedicine rode the wave during COVID, addressing the problems of people not being able to freely move about or to attend hospitals because of the risk of catching COVID, for instance. So, if you see a trend like that, then that’s where private sector can also ride on it and be able to capture value from it. 

Luke:

That’s an interesting one. So, in terms of the whole topic of digital transformation, can you probably elaborate a little bit on how the public sector is approaching this?

Dr. Loke:

Digital transformation is interesting because Singapore is fortunate in a way that our hospitals – public system especially – are very well digitalized. Now, in terms of reaching out to the GPs (the general practitioners) and primary care, is a challenge because many of them still need to get digital and then be able to harness what technology can offer. We need to think of this in terms of the outcomes and benefits they want out of it, not just tech for tech’s sake. I think that must be an important point, that all public sector or health care, has to think about. So, what are the outcomes and benefits for, let’s say to residents? Is it to enable and empower them to take charge of their own health? What are the kinds of technologies we need for that? Is it wearables? Is it mobile apps where everybody now has a mobile phone so it’s easier to nudge them into healthier behaviors?

Second is to providers. What kind of technology would enable and connect the providers to deliver coordinated, better and more integrated care? Between facilities after discharge from one setting to the next, from acute hospital into long-term care, what are the types of technology or digital enhancement that can improve that experience as well as seamlessness of care? 

Number three, the type of technology uses for policy and decision-makers, and the payers of the world. How do you have quality data for planning, for budgeting, for operations, for performance management, and finally for decision-making and policy-making? I think being able to layer that on and say that the technology is not just for technology’s sake, but it’s to bring benefit to each of these types of stakeholders, that will be a thoughtful deployment of technology.

Luke:

I guess from a private sector perspective as well, HealthTech is a big topic. I think Dr. Loke touched upon the topic of transformation. Can you take us through some of the big impacts that you see HealthTech making in the delivery of health care?

Abhay:

We’re all aware of the impact that teleconsultation has had during COVID. Of course, the rapid adoption has helped some players scale, but equally, questions are being asked on the long-term viability of some of these health tech players just offering teleconsultations. We’ve seen them diversified to now being an e-commerce platform for health care products. Some have even looked at providing digital interventions to improve the conditions of people with chronic diseases. Some have gone into e-pharmacy and some others have taken it one step further and invested in offline assets, whether it is a third-party administrator or a network of specialty clinics. So to make this commercially viable diversification across both services that you offer online, but equally, how you connect to offline – whether by making investments yourself or by partnering with players – is absolutely critical for the long-term viability and sustainability of the investment that goes into these digital health platforms.

Luke:

Maybe just one other topic to talk about, Southeast Asia is clearly aging and it’s going to age somewhat in the 2020s, but I think aging will significantly accelerate as we get to the 2030s. Clearly, the cost of health care is a big issue. In that sense, do you see a lot more scope and landscape for public-private partnerships? Would you see this being an increasing trend?

Dr. Loke:

Yes, I think aging does present both challenges and opportunities. You have rightly pointed out that the care and burden will go up because there’ll be fewer younger people taking care of more older people, or what we call the dependency ratio. But we must also think that we are now living in a world, a hundred-year lifespan kind of scenario where most people can live to a hundred years old. So then, if it’s a multi-phase life where you can be productive into old age, then what are we thinking in terms of the preventive aspects to keep people well in place in their homes or in their environment and continue to be productive even into what we call “old age” today? If they can be healthy, then they can continue contributing back to the community. 

One way is of course to have the younger old take care of the older old in community. They are not necessarily after retirement just sitting and watching TV, for instance, but they could help each other. They could also accompany each other. So it is both taking care of the physical health, but also mental health and social health within the community that will improve overall population health. 

So I think aging itself is an issue. Yes, we are all trying to tackle this not just in Singapore, not just in Southeast Asia, but around the world. But we have to also look at the opportunity that it presents and with greater tech adoption, tech savviness, spending power, consumerism, even among the newly aging people, I think there are many opportunities to create products and services that will keep people in good health and productive right into old age.

Abhay:

I think public-private partnerships in the past were at an asset level but now with the health care financing models evolving, as Dr. Loke alluded to earlier, there is an opportunity for partnership to happen where we can look at specific segments of the population, the “elderly” as you called out earlier, where both public and private players can participate to take care of their health conditions for a specific payment which could be on capitation basis. I think this has only been made possible because of how the financing schemes have evolved. As more countries adopt Singapore’s model, I think we’ll see more and more public-private partnerships, but with a new twist to how it will be done.

Luke:

This is an interesting convergence. So, there is banking, insurance, health care, and possibly government working in collaboration.

Abhay:

Potentially. I’m not sure about the relevance of the different players, but certainly, I think as health care financing schemes evolve, we could see some interesting mix of players from different industries take part in provision of health care to these segments.

Dr. Loke:

I think even taking a step back and thinking about aging or even other health care trends, governments are realizing that they cannot solve all the problems. Certainly, they will need private sector participation, which includes investments as well as innovative solutions, products and services to be created. I think that itself is a big opportunity and I think the rising need will be recognized by many for public-private partnerships. That’s the only method we can use to solve such a big issue.

Luke:

Dr. Loke, Abhay, it’s been a pleasure having you on. Before we close the session, maybe I’ll ask each of you to give one piece of advice to, on the one hand, private capital investors, on the other hand, our health care operators. Maybe, Abhay, you can start with the private capital investor side of it.

Abhay:

Given that there are many forces, factors, players influencing how care will be delivered in the future, this will certainly have a bearing on investment thesis and hence should be considered as part of any diligence effort and value creation plans of investors.

Luke:

Thank you, Abhay. Dr. Loke, would you like to add on to that?

Dr. Loke:

I would encourage both investors and operators to think longer term, take calculated risks, perceive the trends, look around the corner. Transformation and disruption could happen very quickly. COVID is one example. The next one may be generative AI (artificial intelligence). We are seeing how that’s changing the future of work even within health care. So, watch out for these and be prepared to adjust your thinking and investment thesis as our basis.

Luke:

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