Indonesia’s Healthcare Industry: a Promising Market of Growth

by | Dec 18, 2020 | Market Research | 0 comments

Indonesia’s Healthcare Industry: a Lot of Room to Grow

As a developing country with a growing middle class and a stable economic growth, optimism flourish around Indonesia. Continuous developments are being implemented across Indonesia to improve the nation’s quality of life. A desire to fulfill basic human rights for everyone in the country accelerates the establishment of infrastructure and of course — the improvement of the healthcare system.

The Indonesian government is still working on providing healthcare to its people that are spread around 17,000 islands. Although only 35% of its island is inhabited, healthcare facilities in Indonesia are unevenly distributed. 44% of primary healthcare facilities are located in Java, the most packed island. There are still many underdeveloped rural areas that rely heavily on puskesmas (small clinics) for their healthcare services.

A Shortage of Health Facilities

The coronavirus pandemic has put Indonesia’s healthcare system and facilities to the test. The growing number of positive cases each day that overwhelmed hospitals shows how Indonesian healthcare facilities are still in need of improvement. As of 2019, Indonesia has 1,787 privately managed hospitals and 1,026 publicly managed hospitals. These 2,813 hospitals only offer 310,710 hospital beds, which means only 1.17 beds per thousand population (World Health Organisation, 2019).

Source: indoservice

To accelerate the improvement of the country’s healthcare infrastructure, the government has made amendments to its Negative Investment List in 2017. The government gives foreign investors a larger stake in certain subsectors of the Indonesian healthcare industry, such as in hospitals, specialized clinics, and medical equipment.

Raw Materials Imports for Medicine

Indonesia’s pharmaceutical market is currently worth US$9 billion and is expected to reach US$10.11 billion by 2021. Over-the-counter (OTC) pharmaceuticals amounted to US$3,483 million in 2018. Although a large number of essential drugs are produced locally, 95% of the basic/active ingredients are still imported.

Medical Equipment Import Dependency

Due to a lack of domestic manufacturers for medical equipment, over 90% of Indonesia’s medical devices and raw materials are being imported from abroad. Indonesia’s medical devices industry is worth an estimated US$4.5 billion in 2019, with the majority (US$2.8 billion) coming from imported products (ASEAN Briefing, 2020).

Diversity in Indonesia’s Healthcare Market

Indonesia’s healthcare market is made up of many segments and regions that greatly differ from each other. A one-size-fits-all approach will not work to enter Indonesia’s healthcare market, due to the diversified market. Current Indonesia’s healthcare system is a mixture of public and private providers and public and private financing.

A Healthcare System for All vs. Private Insurance Scheme

In January 2014, the Indonesian government launched a national health insurance scheme, Jaminan Kesehatan Nasional or JKN. This universal healthcare system is run by the Social Security Administrator for Health (BPJS) agency. However, JKN did not reach the expected 100% universal coverage by January 2019, only 83% is covered. Also, since its launch, JKN has incurred increasing deficits each year (Health Policy Plus, 2019).

Currently, BPJS members could only have access to public clinics, hospitals, and only a limited number of private hospitals. On the other hand, the private insurance scheme’s objective is different from JKN. Primarily, private schemes aim to provide better, more comfortable medical facilities while making a profit.

According to data from Ronald Berger, Indonesia’s private health insurance market is twice as big as the public insurance market. However, that does not necessarily mean the public health facilities are of less quality. This just highlighted the fact that the subscribers to public and private schemes have a contrasting income level.

Outbound Medical Tourism

Over the years, Indonesia has suffered from outbound medical tourism. In the search for better medical treatment, many Indonesian travel abroad. It is recorded that 600.000 Indonesian went overseas and spent around US$4 billion annually (Wyman, 2018). Middle and upper-class citizens with high buying power choose to seek medical treatment overseas, mainly to Singapore and Malaysia, for a better-quality treatment.

Medical tourism in Indonesia is driven mostly by the desire for better medical services. Indonesian with high buying power seek medical service quality that the Indonesian healthcare service has yet to serve. With the growing number of the wealthy middle class, it seems that the number of medical tourists will continue to grow unless Indonesia could provide a better-quality healthcare service.

The Rise of Digital Health

In the current situation of the coronavirus pandemic, the government urges its people to visit their physician virtually. The Ministry of Health decided to temporarily waive rules on telemedicine so that patients can have a consultation with their physician over the internet. The number of health application users increases significantly during the coronavirus pandemic.

Alodokter applications have been downloaded by 5.5 million users (The Jakarta Post, 2020). The teleconsultation platform saw 1.5 times growth in website traffic after the pandemic. Another startup, Halodoc, saw exponential growth opportunity as they sealed an investment deal of US$65 million in 2019 (Galen Growth, 2020).

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Digital health can contribute as an innovative solution to Indonesia’s complex and evolving healthcare system. Indonesia is the largest and fastest-growing internet economy in Southeast Asia. With 64.8% internet penetration, there are 170 million internet users in Indonesia. The digital revenues are growing rapidly, US$85 million in 2017 (MTPC Connect, 2020).

A much-needed upgrade to the healthcare infrastructure opens windows for foreign high-quality healthcare device manufacturers to export their products to Indonesia. A note, though, Indonesia has regulations (Ministry of Health Regulation №62 of 2017, BPOM Regulation №1010/MENKES/PER/XI/2008) and barriers for foreign companies to enter Indonesia.

After all, Indonesia offers many opportunities for overseas investors and manufacturers that are willing to expand their business to the country. Expanding your healthcare business to Indonesia could be greatly beneficial if it’s done right. Be prepared, our next article will get you through successful entry strategies to the Indonesian healthcare industry.

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