Major transactions have taken shape in the hospital sector by large market players. Acquisitions made were clearly either expanding network or getting ready for an initial public offering (IPO).
Two key assets changed hands in the past year, and they include the acquisition of Island Hospital, which was completed recently, by IHH Healthcare (IHH) for RM3.92bil. The Penang-based hospital was valued at RM3.92mil per bed based on its planned expansion to a 1,000-bed hospital. Measured by enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda), the deal was done at a staggering 24.6 times multiple.
Then in 2023, Sime Darby and AH Holdings Health Care Pty Ltd sold Ramsay Sime Darby Hospital (RSDH) to Columbia Asia for RM5.68bil, valuing the Subang Jaya-based hospital at 20.1 times EV/Ebitda and at RM3.71mil per bed based on RSDH’s 1,530 total beds capacity across seven hospitals in Malaysia and Indonesia.
Private hospitals trade at a premium valuation to other industries due to the cash-generating ability of the business model as well as the strong growth of the industry itself due to multiple factors such as higher life expectancy, rise in non-communal diseases (NCD) as well as demand for personalised and timely care for those who can afford them.
Source: https://en.wikipedia.org
According to the Health Ministry, as disclosed in the Health White Paper (HWP), Malaysia has a hybrid healthcare system, comprising a public and a private healthcare system. The public sector seeks to provide widespread coverage of universal healthcare for the population, delivering virtually near-free primary healthcare services and heavily subsidised secondary and tertiary care services which are largely funded by federal government revenues. The private sector seeks to provide healthcare services to the public on a fee-for-service basis which is predominantly funded by individual out-of-pocket payments and private health insurance products.
In terms of numbers, based on the ministry’s 2023 Health Facts report, Malaysia had some 148 government hospitals, inclusive of 11 special medical institutions, with some 45,167 beds at the end of 2022. Over at the private sector, the number of private hospitals stood at 207 with some 17,781 beds. Hence, while the public sector has a 41.7% share in terms of the number of hospitals, they represent 71.8% of the total number of beds.
The Health Ministry has one of the highest allocations of RM45.3bil in Budget 2025. The amount comprises RM38.5bil for operating expenses and RM6.7bil development expenditure. Emoluments supply and services are the bulk of the government’s expenditure for the ministry, accounting for 53.3% and 37.3% of total expenditure next year respectively.
According to the Global Medical Trend Rates Reports by Aon, medical costs in Malaysia rose by 10% in 2022 and 12.6% in 2023, which is higher than the global average of 5% in 2022, and 5.6% in 2023.
Among the key factors contributing to the rise in medical cost inflation is the increase in costs of hospital supplies and services, including drug prices, advancements in medical technologies, and the increase in the utilisation of health services following the resumption of elective medical procedures following the Covid-19 pandemic.
One of the most important questions patients get at a hospital is whether they are insured or not. An insured patient will be covered by his/her insurance company but with the co-payment in place, the insurance company’s outlay is reduced by the agreed co-payment amount, either in percentage or the absolute amount. Still, the medical bill can be rather substantial, and this drives insurance costs higher over time.
Medical inflation via insurance coverage is also rather obvious as there are cases where a treatment done and paid out of one’s pocket is lower by 15% to 20% than if covered under insurance. Why is this so? It is widely believed that the pure reason for this is that since it is covered by insurance, it is a blank cheque for the hospitals to charge what they can.
The recent comment by the Health Minister on the proposal to set up a National Health Fund (NHF) is positive for the healthcare industry to ensure we have adequate cover for all Malaysians. The NHF should be funded not only via contributions from the government but also perhaps via a defined contribution mechanism from both employers and employees that could mitigate some of the rising healthcare costs. This can be like the Employees Provident Fund but obviously with a lower contribution ratio. Even a 2% contribution each by both parties can easily add more than RM20bil into the NHF, which can then be used to subsidise healthcare costs for all Malaysians.
The Malaysian healthcare sector is at a crucial point whereby intervention by the government is necessary to reduce medical inflation in the private sector for the benefit of all.
Reference:
Healthcare sector needs a dose of reforms, Pankaj C. Kumar, The Star, 9 November 2024
