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FEATURE
www.asiabiotech.com
New Market Attractions and Restraints
in the Healthcare Market
Indonesia in 2015
Dr Siddharth Dutta
Industry Manager, Healthcare Frost & Sullivan
Background
Indonesia is the fourth most populous country in the world, with a
population of approximately 248 million. With a high birth rate of
18.5 births per 1000 population and a relative low mortality rate of
6.3 per population of 1000, it is expected to reach a total population
size of 267.5 million by 2020. Indonesia has shown a trend towards
rapid urbanization, and this is expected to continue at an estimated
CAGR of 2.5% from 2010 to 2014.
Indonesia had the lowest spending on healthcare as percentage
of its GDP (3.3%) in 2013, and probably the lowest in the region when
compared with neighbouring countries such as Singapore (5.8%),
Malaysia (4.3%) and Thailand (4.2%). The implementation of the
Universal Health coverage or JKN (Jaminan Kesehatan Nasional) in
2014 was the best thing that could have happened to the region.
By 2020, the government plans to extend healthcare coverage to
240–260 million Indonesians. This would mean demand for more
clinics (primary) to screen new patients and more hospital beds
from 2014.
The Healthcare Industry —
Private Hospital Market
Indonesia has an interesting healthcare system. The system is
demarcated into public delivery system with MOH hospitals,
provincial and district hospitals and primary health clinics known as
‘Puskesmas’. The private delivery system consists of general, specialty
hospital and private clinics.
In 2014, the country achieved the target number of primary
care centers (called Puskesmas), which was 1 for every 30,000
persons, and essential to handle the new patient pool covered under
Universal Health Coverage. The number is expected to increase, with
approximately 10,500 ‘Puskesmas’, roughly 1 for every 24,000 people
in Indonesia. However the real problem is not the primary screening
market, but the hospital market.
Of the 2,350 hospitals in the country, only 1,710 hospitals
enrolled themselves (to extend the JKN coverage) by December 2013.
Although more hospitals are expected to join in 2015, still there is
a major unmet need for hospital beds. So though the patients can
be screened at primary level clinics, due to limited bed capacities at
the secondary and tertiary levels, there is a likelihood of long queues
or even refusals or referrals to other hospitals.
The country expects over 35,000 new beds by 2020 (Indonesia
has one of the fastest growing Private Hospital Sector in APAC). The
volume of patients started increasing in 2014 due to implementation
of JKN. In fact, some of the regions such as Bandung had already
reported an increase of 200% patients in clinics in the first two
months. The Puskesmas are not enough to cater to the all the
patient pools.
Indonesia has an estimated 760 private hospitals in 2014.

2. 26
FEATURE
ASIA PACIFIC BIOTECH NEWS
Siloam Hospital is one of the major hospital service providers
with 18 hospitals, and is expected to start 5 new hospitals by the
end of 2014 to reach a total of 40 hospitals in the next three years.
Siloam group anticipates an increase in patient pool which would
be willing to pay upfront and out of pocket rather than waiting in
long queues for medical screening in public hospitals.
A few smaller hospital groups such as Omni Hospital have been
reported to replicate Siloam’s business model and are planning to
build hospitals outside of concentrated areas of Java, with three
facilities in the pipeline.
In anticipation of the increased patient pool, non-traditional
players from pharmaceutical industries, such as the state-owned
PT Kimia Farma, have started venturing into the hospital business.
It has plans to build six new hospitals over the next few years. PT
Kalbe (one of the largest pharmaceutical companies) entered into the
hospital market by partnering with Mitra group. Mitra is the second
largest private hospital operator, with 10 hospitals.
Market Attractions
In Indonesia, the majority of hospitals are concentrated in the Java
region. The country still falls short of the number of hospital beds
per 1000 population when compared to neighbouring regions i.e
1.13 beds per 1000 population in 2014 as compared to Thailand
(2.1), Singapore (2.0), Vietnam (2.0) and Malaysia (1.9) and this
could be one of the major reasons that patients (with capacity to
pay Out-of-pocket) move to other countries for healthcare services.
Opportunity
Assuming the OECD’s global average 3.0 hospital beds per 1,000
patients remains valid; Indonesia is expected to continue experiencing
a shortage of hospital beds till 2030. Therefore, the private hospital
sector looks promising for investors from 2015 onwards.
Restraints
In spite of good intentions by the new government, the hospitals
under JKN faced the initial teething issues of delayed payments in
the first quarter of 2014. However the industry expects that this
would rather not dampen the tempo of the hospital service providers.
Besides this, Indonesia lags behind in skilled manpower, infrastructure
and delays in approval processes.
The Healthcare Industry —
Pharmaceutical Market
Indonesia has more than 18,000 pharmacies and registered outlets
for the sale of pharmaceuticals products and dominated by sales of
generics. There are many privately owned local apotik (pharmacies)
in Indonesia e.g Apotik Melawai (headquartered in Jakarta). The rural
clinics usually have their own pharmacies, but with limited supply
as compared to city chemists. PT Enseval Putera Megatrading Tbk
is one of the largest pharmaceutical distributors in Indonesia and
specialises in the distribution and supply of pharmaceutical products,
consumer products, devices, etc. Over 40% of pharmaceutical drugs
sold in the county are over-the counter, indicating that Indonesians
favour self-medication. Due to high occurrence of communicable
diseases and epidemics, drugs are in demand as a counter-measure.
Market Attractions
After the demand for hospital beds, the market anticipates a demand
in affordable medicines. Due to JKN, the industry can anticipate
a chain reaction of events in 2015. In anticipation, State-owned
pharmaceutical companies such as PT Kimia Farma and PT Indofarma
had increased their production capacity to 123% and 200%,
respectively in 2013. Further in December 2014, the government
announced the mergers of PT Indofarma Tbk and PT Kimia Farma
Tbk and further consolidated their positions.
With the sudden increase in demand for affordable medicines,
the market can expect increase of malpractices, irregularities in
supply chain, sale of forfeited medicines and even price increases.
Through their state owned drug manufacturing agencies, the new
government is expected to control this activity and step up the supply
of affordable drugs in the market. The state-owned PT Kimia Farma
already operates one of the largest pharmacy networks in Indonesia,
with over 500 outlets in 2013 which is expected to reach 560 in
2014–2015. With the merger, the government can control both
supply and demand chains in the pharmaceutical market.
One of the largest pharmaceutical companies of Indonesia, PT
Kalbe group, invested US$12 million to build a new factory in West
Java with a monthly capacity of 87 million tablets. The company
also plans to introduce 20 new products in the market. The market
is mostly dominated by domestic players.
Opportunity
The Indonesian pharmaceutical market is largely driven by generics
and OTC drugs. The local companies have a higher market share
compared to MNCs like PT Pfizer. Indonesia pharmaceutical market
is also dominated by distributors and most of the MNC operate in
the market through them. Zuellig Pharma is another large distributor
for pharmaceutical products in Indonesia. Besides Zuellig, Enseval
(distributors of Kalbe), Lautan and Millenium Pharmacon are the
other major players.
Restraints
At present, the regulatory irregularities have created challenges for
lot of foreign companies. The Government is making efforts to cut
short the approval process, curb the factors responsible for delay
and make the system transparent. Drug manufacturers are expected
to set up facilities in the countries.

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FEATURE
www.asiabiotech.com
Dr. Siddharth Dutta is an Industry Manager with the Healthcare Practice at Frost & Sullivan, Asia
Pacific. His background in healthcare covers the emerging markets for the Pharmaceutical, Biotechnology
and Diagnostic Industry.
Although he has completed several research studies and consulting projects in areas such as diagnostic
markets, stem cell and immunosuppressant markets in Asia, his key area of focus is the value based healthcare
model in the pharmaceutical industry.
Prior to joining Frost and Sullivan, Dr. Dutta was a senior project manager and head of Business Intelligence
at OSI Systems, India where he handled large scale project management, data analysis & reporting and
business intelligence. He also worked with the Government of India on policy making and setting up of the
Biotechnology Industry Research Assistance Council.
Dr. Dutta has received much acclaim for his research through articles and quotes published in International Journal of Dermatology
(USA), ISHAM (France), IAMM (India) and conference papers in India and USA.
He holds a PhD and a Master’s of Science from the University of Allahabad, India, a Master’s of Science in Clinical Residency
from SMU India, a PGEM (eMBA) from IMT Ghaziabad, India and a Six Sigma Green Belt from ISI, India.
About the Author
However, foreign pharmaceutical companies often face tough
competition from local manufacturers of low-cost generics. The
domestic manufacturers are also supported by the government via
various schemes like ASKES, etc. Most of the foreign companies enter
the market through distributors.
Conclusion
Frost and Sullivan has been tracking the market in 2014 and
expects significant growth in private hospitals, medical devices and
pharmaceutical markets. In a recent report on Indonesia, Frost and
Sullivan has studied the market in terms of opportunity by segments,
sectors, regulations and ease of entry for a foreign investor in 2015.
The report covered the major healthcare segments, competitors who
dominate these segments and forecasted growth for the next 5 years.
Indonesia is definitely growing in 2015. Whether it can become
an alternative market after China remains to be seen. At this point
the domestic consumption is high and there is demand for private
hospital beds, generic medicines, medical devices and diagnostics.
Manufacturers from South Korea, Japan and other SEA countries have
already started considering Indonesia as a potential market. Global
companies like GSK and Fresenius Kabi AG have already increased
their shares in 2014. The year 2015 is expected to stand out as an
important chapter for Indonesia and investors who are looking at
the attractions of the healthcare market.