Analysis of Asia’s Changing Health Care Delivery Systems

Business Implications

• Throughout Asia, changing health care needs, along with strong economic and population growth, are forcing countries to address staggering increases in health care demands and costs and to shift some of the burden of those costs from governments to the private sector. Also, improved access to quality health care has increased demand for numerous medical products and services.

• One consequence of Asia’s economic success has been a significant change in disease patterns. As living standards improve, many Asian countries are dealing less with problems such as malnutrition, associated with developing countries, and more with diseases like cancer, associated with prosperous nations. In response, health care providers must adapt products (diagnostic and therapeutic) and facilities to meet these needs.

• Singapore has earned a reputation as Asia’s health care center and is drawing growing numbers of patients annually. In addition, Singapore, with its central location and strong infrastructure, is used by many foreign medical firms as a base of operations in Southeast Asia. Singapore’s government has tried to build the country’s biotech industry by offering incentives to biotech companies.

• Increasing demand will drive the medical device and pharmaceutical industries by more than 10% a year in many Asian nations through 2000.

Background: Asia’s Changing Health Care Demands and Policies

Over the past decade, Asia has been one of the fastest-growing regions of the world. The World Bank estimates that over the next decade, East Asia (excluding Japan) will grow twice as fast economically as any other region in the world. And by the year 2020, seven of the top ten world economies will be in Asia—China, South Korea, Japan, India, Indonesia, Taiwan, and Thailand. With the economies of many Asian countries experiencing double-digit growth rates, increasing numbers of middle- and upper-class citizens have begun to demand the high-quality health care they can now afford. In response to this demand, various nations in Asia are creating systems that most effectively address the unique health care needs of their citizens.

One consequence of Asia’s economic success has been a significant change in disease patterns. As living standards improve, many countries are dealing less with problems of malnutrition and cholera, associated with developing countries, and more with diseases like cancer and heart disease, associated with prosperous nations. In response to these changing disease patterns, health care providers must adapt products (both diagnostic and therapeutic) and facilities to meet the needs of newly developed nations.

Another consequence of Asia’s growing prosperity is rising health care expenditures, as health care facilities are modernized and as more medical products and services are used. To help control rising costs and to shift some of the burden of paying for medical care from governments, many Asian countries are moving away from health care that is subsidized or controlled by the government and toward private-sector solutions, such as insurance programs. These programs (found in Singapore, Thailand, and even China, among other countries) are typically paid for by employers or through a joint contribution from employers and employees.

At the same time that many Asian countries are shifting more of the burden of paying for health care to the private sector, the growing ranks of affluent Asians are choosing to receive medical care from nongovernment services, where they believe they can get the best treatment. This demand has further fueled the growth of private-sector health care in the region, leading to large increases in the development and utilization of private hospitals. In addition, some Asian governments are trying to improve health care within their borders by working to attract foreign medical product manufacturers with tax breaks and other incentives.

Although many Asian countries face similar challenges in restructuring their health care systems, these countries should not be treated as one homogeneous region. Clearly, the wealth and economic growth of Singapore, Hong Kong, and South Korea separate those nations from developing countries like Vietnam and Thailand, especially when total health care expenditures are considered.

This report examines the health care delivery systems of several Asian countries that are developing rapidly and that hold the most promise for future medical device and pharmaceutical sales. In particular, it discusses how countries are restructuring their health care systems to meet the increased demand for medical products and services and describes the role that foreign manufacturers of medical products are playing in the region’s growing economies.

China

The third largest economy in the world with more than one-fifth of the world’s population (1.2 billion people in 1995), China is also one of the fastest-growing economies, with an increase in gross domestic product (GDP) of 9.5% in 1995. Twenty-five years ago, China had a poor, agriculture-based economy, but today the country is becoming more and more industrialized. Experts predict that in another 25 years, China will be the world’s largest economy. The combination of China’s huge population and high economic growth rate is creating an enormous market that foreign companies are eager to tap.

Health Care Trends and Policies

Despite China’s booming economy and the growth of its middle and upper classes, the government is still the main provider of health care. As of 1993, China had 60,784 hospitals, none of them private; in 1995, the person-to-doctor ratio was 648:1, and the person-per-hospital-bed ratio was 382:1. The total public health expenditure (government and individual) was $1.4 billion in 1993, and in 1995, the per capita drug expenditure was $8-12. Because the government of China can no longer afford to provide universal free health care to all its citizens, it has changed to a system where only approximately 20-25% of the population receives state-supported health insurance. Thus, an estimated 75-80% of the population, or more than 900 million people, have no health insurance. Those covered under state-run insurance programs include retirees, students, government officials (at central, provincials, and local levels), military personnel, and employees of state-owned enterprises.

China is also experimenting with a more market-based health insurance system under which an insured employee contributes approximately 1% of his or her salary, and the employer contributes approximately 10% of the employees’ salary to pay for the insurance. The money is then split between a general insurance fund for employees and a personal insurance account.

Although it has reduced state-funded medical coverage, the Chinese government is still finding the burden of health care costs to be too heavy; thus, it has sought cost-containment strategies affecting the entire health care sector. One such strategy is a program called the National Essential Drug Bulletin (NEDB). Aimed at minimizing the cost of pharmaceuticals to the government, the NEDB publishes a select list of drugs and the prices at which the government will reimburse for them. The Chinese Medical Association, which produces the NEDB, decides whether to allow reimbursements for a drug based on its ability to meet the health care demands of the majority of the population, its safety and effectiveness, the cost for a full course of treatment, and the form the drug comes in as well as the dosage required. The Chinese government has also imposed price ceilings on prescriptions and has been slashing subsidies to hospitals to force them to cut their costs.

The Role of Foreign Medical Companies

Despite government cutback in health care spending, the growth of the Chinese economy and population has ensured high growth rates in the health care industry, including the pharmaceutical market. According to the State Pharmaceutical Administration of China (SPAC), the Chinese pharmaceutical industry had total sales of $10 billion in 1995 and continues to grow at a rate of approximately 15% a year. That same year, the 1,500 foreign companies investing in China contributed approximately 26% of the pharmaceutical market, split 50-50 between foreign drug imports and joint-venture production. In addition, the Chinese domestic pharmaceutical industry remains strong and from 1990 to 1995 grew at an average annual growth rate of 21%. China’s domestic industry produces mainly low-technology pharmaceuticals such as aspirin, antibiotics, and vitamins.

Whether a company’s drug is listed on the NEDB can have a significant effect on that company’s success in the Chinese market. One example of the NEDB’s impact is Amgen’s erythropoietin (Epogen) for treating chronic renal failure. When Epogen was removed from the NEDB, the company’s sales of this drug in China dropped between 70-80%; however, when the drug was reinstated on the list, sales increased by 60-70%. Despite cases like Amgen’s, a drug’s absence from the NEDB list does not mean that it will fail completely in the Chinese market. Increasingly, large numbers of wealthy consumers in China’s big cities can afford the more expensive unlisted drugs and are willing to pay for the health benefits they provide. And despite potential problems, such as lack of an NEDB listing, approximately 75% of the world’s top 20 pharmaceutical companies have invested in China, recognizing the unique market opportunities available in the country.

In July 1994, Hewlett-Packard’s Medical Products Group expanded its manufacturing operations in China by opening Hewlett- Packard Medical Equipment Products, in Qingdao. The Qingdao plant, which manufactures a variety of medical products (including patient monitors, cardiographs, ultrasound systems kits, and printed circuit assemblies), projected an output valued at $10 million for 1994 with a goal output of $33 million by 1997. It has apparently reached its first goal and is on its way to meeting the second. Testifying to the plant’s significant expansion, a Hewlett-Packard spokesperson stated, “In August 1994, the plant had 70 employees and 2,100 square meters of space. Now there are 120 employees, and the plant has been expanded to 3,800 square meters.” Of the products made at the plant, 40% are for the domestic Chinese market, and the remainder are exported, mostly for the Asian market. The spokesperson added, “There is absolutely no question that making this type of commitment to the Asian marketplace gives HP a competitive edge over companies that don’t manufacture in the region.”

Medtronic, a medical products manufacturer, has been in the Chinese market since the 1970s, building a network of relationships with the government, doctors, and others in the medical field. A February 7, 1996, company press release stated that Medtronic had been qualified as a Wholly Foreign Owned Enterprise (WFOE), meaning that it is subject to more lenient regulations than are usually faced by a joint venture. The company will soon open a new manufacturing facility for pacemakers in the Zhangjiang Hi-Tech Park near Shanghai. Michael J. Costello, vice president of Medtronic, said that the investment “demonstrates Medtronic’s continuing commitment to the building of long-term relationships and to leadership in the development of cardiovascular medicine in the People’s Republic.” Medtronic is the market leader in China for pacemakers and several other product lines and expects the Chinese markets for angioplasty catheters and coronary stents to develop rapidly, thus offering additional growth opportunities for the company.

Hong Kong

Hong Kong, as a port city in a prime location for trading with China, has developed into one of the world’s busiest financial and trading centers. The country has experienced strong economic growth—reaching 5.5% in 1994—and it has one of the highest per capita GDPs in Asia: $21,750 in 1994. Among the 5.5 million residents of Hong Kong are disproportionately large numbers of millionaires who have benefited from the country’s booming economy. They and other prosperous citizens have helped create a strong demand for world-class health care.

Concerns in Hong Kong about controlling health care costs (discussed in the next section) may become eclipsed by the larger problems that may arise now that the country, a former British colony, has been handed over to China as a “Special Administrative Region.” Although China is not expected to make drastic changes to political, economic, and social policies in Hong Kong, no one knows for certain how the relationship will evolve. China understands that keeping Hong Kong as a center of business, finance, and trade is in its best interest; thus, China is not expected to change policies affecting Hong Kong’s commerce. At the very least, however, the former colony will have to adapt to new ways of doing business; at the very most it could experience an overhaul of its entire political and economic system.

Health Care Trends and Policies

Forty-nine hospitals serve Hong Kong: 37 public and 12 private; in 1995, the person-per-doctor ratio was 909:1 and the person-per-hospital-bed ratio was 233:1. The government in Hong Kong is a major player in the health care industry and—perhaps because of the country’s relatively high person-per-doctor ratio—has made a commitment to improve health services. Government hospitals are heavily subsidized in Hong Kong, and private medical insurance is rare. Because of this subsidization, prices are low for patients at government facilities (approximately $7-13/day for a hospital stay, including treatments and drugs). However, keeping prices low for patients has put a huge strain on Hong Kong’s public health care system. Government health expenditures have increased enormously in the past few years, growing by 20% in 1993 and by 23% in 1994. These high rates are not expected to subside now that Hong Kong has reverted to Chinese control.

Private hospitals in Hong Kong are also facing financial troubles. Because increasing numbers of prosperous Hong Kong residents are choosing private medical facilities over public ones (known for long delays and impersonal service), Hong Kong’s private health care sector has grown tremendously over the past ten years. But private facilities do not receive public support; instead, their fees are paid by private health insurance companies or by individuals directly. In addition, because private facilities are unregulated, they can charge what they like. Consequently, the health insurance industry in Hong Kong has been left struggling to pay for private medical services, including cutting-edge high-tech treatments and the personnel to administer them. To help address this problem, many private hospitals in Hong Kong are planning changes to the services they provide to adapt to the new technology.

One possible remedy being considered for these escalating costs is increasing cooperation between the public and private health sectors. Currently, little or no such cooperation occurs, and both sectors do their own research on the latest treatment trends and make separate purchases of expensive new equipment. Ideas that would foster more cooperation and coordination between the two sectors include allowing the public hospitals, which have relatively low occupancy rates, to lease out space to private sector. This arrangement would allow private and public health services to share overhead costs, laboratory and maintenance facilities, and expensive cutting-edge equipment. Many in Hong Kong understand that such solutions are necessary if health care facilities are to provide the world-class medical care that the country’s residents demand.

The Role of Foreign Medical Companies

Many foreign medical companies have looked past the uncertainty in Hong Kong’s future and have invested there because of the country’s strong infrastructure and key position for exporting to mainland China. Furthermore, as the deadline for Hong Kong’s transferal to China drew nearer, investments from the mainland skyrocketed. Chinese firms have been investing huge amounts of money in Hong Kong, setting up joint ventures with Hong Kong biotechnology and pharmaceutical companies; an example of such a partnership is the Shanghai Hua-Lian Pharmaceuticals/Hong Kong Hu-Kang Pharmaceuticals deal under which Hua-Lian will hold 20% of Hua-Xin High Biotechnology and Hu-Kang will hold 12.5%. Most of the major international health care products companies use Hong Kong as a base for distributing their products throughout the region, including China.

Indonesia

The Economist predicts that by 2020 Indonesia will be the fifth largest economy in the world, and the U.S. Department of commerce includes the country on its list of the ten “Big Emerging Markets.” These are just two signs that the world is beginning to take notice of the dynamic economic growth Indonesia has experienced over the past ten years. This archipelago of 17,000 islands is the world’s fourth most populous nation, with approximately 204 million residents. Although Indonesia’s per capita GDP is low (it was $966 in 1995) compared with that of neighboring Singapore ($21,493 in 1995), its economy has continued to grow at a high rate of approximately 7% a year. As in many other Asian countries, rapid economic growth in Indonesia is fueling a demand for higher-quality health care than the government can afford; therefore, private-sector health facilities are expanding to serve the greater numbers of middle- and upper-class citizens.

Health Care Trends and Policies

Since the 1960s, the Indonesian government has recognized the importance of basic medical facilities and has worked to improve the nation’s health care system and provide services to as many residents as possible; providing heath care to rural areas as well as preventive health care have been particularly stressed. In 1994, Indonesia had 1,123 hospitals: 561 public, 546 private, and 16 affiliated with universities. In addition, the country had 6,984 public health centers and more than 25,000 auxiliary and mobile centers to provide health care to rural residents. Although disease patterns in Indonesia have begun to shift from those of a developing country to those of more-industrialized nations, stopping infectious diseases is still one of the government’s top priorities. Despite the government’s commitment to improving medical services, Indonesia, as of 1995, still had a 6,861:1 person-per-doctor ratio and a 1,643:1 person-to-hospital-bed ratio, among the worst such ratios in Asia.

Each year, the Indonesian government spends approximately 3.7% of its budget (or $477 million) on public health care. Most of this money is meant to subsidize basic health care for those who cannot afford it. Public health services in Indonesia charge patients a uniform fee set by the Indonesian Ministry of Health (MOH) in an effort to make health care affordable to even the poorest members of the population. However, by setting uniform prices for all patients, the government subsidizes costs even for patients who can afford to pay the full market price for medical care; therefore, the public sector bears a heavy cost burden. To compound the problem, government subsidies, though intended to pay the medical costs of those who can least afford health care, do not always reach those they are most meant to help: surveys in Indonesia have shown that 35.5% of poor persons who are ill do not seek medical help, compared with 29% of the nonpoor.

However, because of the tremendous economic growth in Indonesia, this situation is beginning to change; the rising middle and upper classes are demanding the higher-quality health care typically provided by private medical services, thus shifting some of the burden from the public sector. Although some wealthy Indonesians prefer to go to Singapore or Australia for health care, many are choosing to use private facilities in their own country, helping to make the private sector the fastest growing area of the Indonesian health care market. The number of private hospitals in Indonesia increased 27.3% between 1989 and 1994, while the number of public hospitals increased by only 4% in the same period. During the 1990s, private health care expenditures in Indonesia increased by more than 27% a year, and by 1993 approximately 80% of health expenditures were in the private sector.

Partly because of the increased demand for higher-quality health care in Indonesia, the pharmaceutical market there has been experiencing strong growth rates. The MOH estimates that sales for the country’s pharmaceutical industry grew at a rate of 9.7% in 1994, 22.4% in 1995, and 18.6% in 1996.

The Role of Foreign Medical Companies

Although imports of finished pharmaceuticals make up only 10% of Indonesia’s total pharmaceutical market, foreign medical firms still play a large role in the industry. This relatively small percentage of imports is, in part, a remnant of an Indonesian law that until 1993 prohibited importation of finished pharmaceuticals. In efforts to get around this law, foreign firms invested in Indonesia through joint ventures that allowed them to produce and finish their products in the country. In 1995, foreign joint ventures made up 36% of the pharmaceutical market, valued at approximately $1 billion that year. Because Indonesia has one of the lowest per capita expenditures on health care ($5/year) in the region, an improving person-per-doctor ratio as more doctors are being trained, and a growing population, its pharmaceutical market has the potential to skyrocket as the country’s economy continues to expand. This growth could allow foreign pharmaceutical companies an even greater role in the Indonesian market.

Many foreign medical firms are already increasing their investments in Indonesia. In early 1996, Baxter World Trade formed a joint venture with P.T. Kalbe Farma, the largest pharmaceutical operation in Indonesia. The deal gives Baxter access to Kalbe’s well-developed distribution network in Indonesia, potentially allowing Baxter to increase its sales fivefold, from $100 million in 1995 to $500 million in 2000, according to the company’s projections. On the same day that the Baxter / Kalbe deal was announced, Ciba Vision announced plans to build a contact lens manufacturing plant on Batam Island that would supply lenses primarily for export. These deals are just two examples of how foreign medical companies are increasingly taking advantage of the opportunities available in the Indonesian market.

Malaysia

Malaysia, a country of 19.7 million people located between Thailand and Indonesia, has gained a reputation as one of the world’s most dynamic economies. With an 8.7% economic growth rate between 1991 and 1995 and a 512% increase in per capita GDP (from $1600 to $9,800) between 1986 and 1995, this reputation is well deserved. Moreover, the constitutional monarchy that governs Malaysia has taken an active role in the country’s economic development. Advances in health care, however, have not kept pace with economic growth. The government and private sector in Malaysia are trying to correct this imbalance by committing to major programs to improve the country’s health care system.

Health Care Trends and Policies

Malaysia’s health care system is made up of 298 hospitals (108 public and 190 private), 529 government-run health centers, and 1,992 rural clinics. In 1995, the person-per-doctor ratio was 2,700:1 and the person-per-hospital-bed ratio was 442:1. Although the growing upper and middle classes in Malaysia continue to demand higher-quality health care, a large percentage of Malaysians are poor and live in rural areas with no access to health care. Because of these income disparities, Malaysia’s health care problems include those of the developed world, such as cancer, heart disease, and drug addiction, as well as those of the developing world, such as malnutrition, cholera, and tropical diseases. Consequently, the Malaysian health care system has made an effort to become flexible enough to deal with a wide range of medical problems.

In an effort to improve the country’s medical services, the Malaysian government spent approximately $975 million on health care in 1995 (a 144% increase over government health care spending of $400 million in 1989), accounting for 3.1% of its GDP. Malaysia’s five-year economic plan for 1996-2000, also known as the seventh Malaysian plan, calls for more that $1 billion to be spent on health care annually. In addition, the seventh plan sets specific goals for improving medical services:

• Promoting health education and preventive care.

• Increasing access to health care in rural areas.

• Increasing the efficiency of medical services by privatizing hospitals.

• Increasing the government’s role in regulation health care while reducing its role in the actual delivery of medical services.

The specifics of this plan show Malaysia’s commitment to improving health care while keeping the costs to the government down. For example, provisions allowing private hospitals to provide health care in the more affluent urban areas free the government to allocate more resources to poorer rural areas.

The Role of Foreign Medical Companies

Because of a government commitment to improve health care and attract high-tech firms, Malaysia has become a popular country for investment by foreign medical companies. (Government incentives for foreign investors include eligibility for a full tax exemption of statutory income for five years or an investment tax allowance of 60% on qualifying capital expenditures incurred within five years.) Currently, companies such as Ansell International, Johnson & Johnson, and Euromedical manufacture low-tech items (including surgical gloves, bandages, surgical instruments, and catheters) in Malaysia for export around the world. Leading pharmaceutical manufacturers have also set up operations in Malaysia. These include Warner-Lambert (Mfg.), Sterling Drug (Malaysia), Glaxo Wellcome (Malaysia), Pfizer (Malaysia), Chemical Company of Malaysia (CCM), and B. Braun Medical Industries. A common practice of pharmaceutical companies in Malaysia is to import raw materials and then to mix and blend these materials to create medical and pharmaceutical preparations. These products are both used within Malaysia and exported throughout the region.

CCM provides a good example of the growth in the domestic pharmaceutical industry. Over the past few years, CCM has acquired the Malaysian operations of many foreign-based pharmaceutical companies, including Warner-Lambert (Mfg.), Hohan Medical Company, and Upha Pharmaceutical Manufacturing. CCM has also signed a memorandum of understanding with a Canadian pharmaceutical R&D company, TPL Phytogen, to manufacture and market pharmaceutical products developed by TPL while allowing CCM to access TPL’s pioneering research work. Companies like CCM have helped Malaysia not only to build its economy but also to improve its health care system.

Philippines

After more than 20 years of a corrupt and unstable political environment, the democratic election of President V. Fidel Ramos in 1992 was evidence of a new beginning for the Philippines, whose economic growth lagged behind that of its Asian neighbors in the 1980s. The election of Ramos has given rise to some economic stability in the Philippines; for example, inflation rates are under control and interest rates are lower. Although the Philippine’ per capita GDP ($1,055 in 1995) is one of the lowest in Southeast Asia, the economic growth rate nearly doubled from 1993 to 1994, reaching 5.1%—a sign that the country is on the right track to sustained economic development. Despite this progress, poverty is still a serious problem in the Philippines.

Health Care Trends and Policies

The Philippines’ health care system differs considerably from those of its Southeast Asian neighbors in that most of the country’s medical services are delivered by the private sector. In 1991, the national government decided to take an even smaller role in the delivery of health care by leaving most of the responsibility for delivering medical services to local governments. Nevertheless, the Filipino government, through the World Health Organization (WHO), is increasing its services to the poor, many of whom still lack access to adequate health care.

For the most part, the private health facilities in the Philippines provide curative services, while public health facilities provide preventive services. In 1994, the Philippines had 1,068 private hospitals and 503 public hospitals; the country also has a wide variety of specialized hospitals. In quantity, Filipino hospitals are on par with those in the more developed Hong Kong and Singapore, but they will need serious upgrading to reach the same level of quality. In 1995, the nation’s person-per-doctor ratio was 1,062:1 and the person-per-hospital-bed ratio was 683:1.

Accompanying the trend of dominant private-sector health care, the number of health maintenance organizations (HMOs) in the Philippines is growing. Most of the 17 HMOs currently operating in the country specialize in group and company health services. (Private health insurance in the Philippines is primarily funded by a combination employer and employee contributions.)

Despite its decreased role in health care delivery, the Philippines’ Department of Health plays an important role in overseeing the entire health care sector; for example, it sets and enforces standards for medical services and facilities and promotes health initiatives. Another main responsibility of the Department of Health is to make sure that all citizens—especially the poor and those living in rural areas—receive basic health services. The department has set seven specific goals for improving public health, including controlling disease, establishing child survival programs, improving women’s health and maternity services, and expanding health service capacity. Expenditures for public health services in the Philippines increased by 400%, to $386 million, from 1985 to 1991. Because of population growth and the need to serve the poor with basic health services, this growth is not expected to taper off anytime soon.

The Role of Foreign Medical Companies

The growth of the Philippines’ population and economy has sparked a demand for health care services and products that foreign companies are helping to meet. In fact, foreign medical companies control approximately 85% of the medical device market and almost 70% of the pharmaceutical market in the Philippines, where much of the domestic production of pharmaceuticals involves mixing and preparing drugs rather than creating new agents. U.S. companies have a particular edge because many Filipino doctors study in the United States and are familiar with the country’s products. Despite competition from larger foreign medical firms, the Filipino company Unilab has been especially successful and now commands more than 20% of the pharmaceutical market in the Philippines and approximately 8% of the pharmaceutical market in Southeast Asia. One of the reasons for Unilab’s success is its powerful joint ventures with foreign medical companies such as Schering-Plough, Roussel-Uclaf, Fujisawa Pharmaceuticals, and Yamanouchi Pharmaceuticals. These alliances have helped Unilab get ahead by giving the company access to new developments and technologies. Another reason for Unilab’s success is its highly developed distribution network in both the Philippines and throughout Southeast Asia.

Singapore

Singapore, a small, affluent island nation off the southern tip of Malaysia, is known around the world for its technologically advanced society. The nearly 3 million citizens of Singapore are well-educated, wealthy (the country’s per capita income of $19,700 in 1994 was 10% higher than England’s per capita income of $17,900), aging, and conscientious consumers. These characteristics of Singapore’s population, combined with the government’s commitment to providing high-quality medical care to all the nation’s citizens, have created a health care system that, in Asia, is second only to Japan’s in level of care.

Health Care Trends and Policies

Singapore’s health care system is made up of 22 hospitals (11 private, 7 public, and 4 restructured—meaning that they are essentially private, with some government regulation), 225 government clinics, and many private practices. In 1995, the person-per-doctor ratio was 725:1, and the person-per-hospital-bed ratio was 295:1; these ratios are comparable to those of other highly developed Asian economies, such as those of Hong Kong and South Korea.

The restructuring of certain hospitals was part of the government’s health infrastructure program, initiated in 1992 to improve several hospitals in Singapore. These restructured hospitals went through a process by which they were expanded, renovated, modernized, and essentially privatized. Although restructured hospitals are mostly private the government requires that they keep a minimum number of beds in their C class wards, which are heavily subsidized and, thus, more affordable for all Singaporeans. In the restructuring process, the government also aimed to reduce operating and staffing costs, making the hospitals more efficient.

The 11 private hospitals in Singapore are profit-driven and are constantly improving their facilities to include cutting-edge technologies. Admissions to private hospitals have been increasing in the past few years and, for the most part, are being paid for by employer-provided private medical insurance. These private hospitals, some of which have hotel-like facilities such as luxury rooms, are attracting increasing numbers of wealthy Asians from outside of Singapore (e.g., those from Indonesia, Malaysia, and Thailand), especially patients from countries whose health care systems are not as advanced as Singapore’s. Consequently, Singapore has developed a reputation as the region’s health care center and is drawing growing numbers of patients annually.

The government of Singapore has been increasing its health care expenditures dramatically over the past few years, spending $480 million 1994, up nearly 21% from 397 million in 1993. It has built a National Skin Center, a National Blood Center, and a Singapore Eye Center and has plans for cardiology, cancer, and neuroscience centers. Although Singapore’s government is increasing health care expenditures, it is also trying to keep that spending from growing out of control. To that end, the government has initiated a policy that caps the fees charged by private doctors for patients’ visits and caps the revenues of restructured hospitals.

Singapore is also well known for having a comprehensive health insurance program for its citizens, and the government has initiated three different programs to help people pay for the health care. The most widely used of these programs is Medisave, a compulsory medical savings plan. Most working citizens up to age 35 contribute 6% of their income, while those aged 35 to 44 contribute 7%, and those aged 45 or older contribute 8%. Self-employed citizens also are required to contribute. People participating in the Medisave program can then use the money in their medical savings accounts to pay for outpatient surgery, expensive outpatient treatments such as radiotherapy, and hospitalizations.

The poor, elderly, and young, who may have little or no money in their Medisave accounts, are partially covered by the government-subsidized Medifund program, which distributes funds directly to local hospitals to pay for their care. A third program, Medishield, provides low-cost insurance for citizens with catastrophic illnesses. As a result of these health insurance programs, which have been expanding over the past few years, Singaporeans have money to spend on—and a desire for—high-quality health care.

The Role of Foreign Medical Companies

Because of its central location and strong infrastructure, Singapore is used by many foreign medical companies as a base of operations in Southeast Asia. For example, Schering-Plough began building a $200 million bulk-chemical manufacturing facility in Singapore in 1995. Expected to be completed shortly, the 9,000-square-meter plant will produce active ingredients for many Schering-Plough’s top products, including Claritin, Eulexin, and Normodyne. These compounds will then be shipped to Schering-Plough affiliates around the world for finishing and sale. The state-of-the-art facility, to be staffed by approximately 150 employees, is the company’s second pharmaceutical manufacturing plant in Asia.

Singapore’s government has targeted the biotechnology industry as ideal for developing the country into a high-tech manufacturing center. To encourage such development, the government is offering three types of R&D packages to biotech companies: the R&D Assistance Scheme, which is intended for corporate projects or those done jointly with nonprofits and funds up to 50% of project costs; the Research Incentive Scheme, which subsidizes up to 50% of approved corporate R&D projects for five years; and the Innovation Development Scheme, which provides unspecified financial assistance for domestic companies. With such attractive packages, and Singapore’s central location, the country is achieving its goal and growing stronger as the region’s health care and biotechnology center.

South Korea

South Korea, with a population of more than 45 million, was one of the first East Asian countries to undergo an “Asian miracle”; its economy developed rapidly and successfully since 1945 and today is the 13th largest in the world. The country is still experiencing high growth rates (approximately 8.4% in 1995) even though its per capita GDP already was a relatively high $8,525 in 1995. To sustain this high rate of growth, South Korea is now working to open up its import market.

Health Care Trends and Policies

Over the past few years, the South Korean government has made improving the country’s health care system one of its priorities. Under the government’s health care improvement plan (or “city plan”), 47 hospitals were opened between 1992 and 1994, giving the country approximately 650 hospitals and more than 13,500 clinics, most of which are public; the government also plans to upgrade several existing facilities in 40 of South Korea’s major cities. Additionally, the government took out a $60 million World Bank loan in 1994 to help fund construction of health centers in small towns and rural areas. As of 1995, the person-per-hospital-bed ratio in South Korea was relatively low at 304:1, and the person-per-doctor ratio was 951:1. Further, the number of doctors increased 45% to 51,425 between 1994 and 1989.

South Korea instituted a mandatory health insurance system in 1977 and, because of low premiums, high co-payment rates, and limited benefits, was able to achieve universal coverage by 1989. Under this system, the government and employers share responsibility for financing health care.

Although the South Korean government has done much to upgrade the country’s health care system, it has also tried to control costs. For one thing, the High Cost Medical Equipment council (a division of the Ministry of Health and Social Affairs) must approve any purchases of high-cost medical devices to be installed in public facilities. The government has also tried to limit expensive hospital visits by ensuring that patients first seek treatment at a primary care clinic, where they can then be referred to a hospital if the condition requires it.

The Role of Foreign Medical Companies

Because of the South Korean government’s commitment to improving health care, the country’s medical market is growing at phenomenal rates. In particular, South Korea’s pharmaceutical market, valued at approximately $3.7 billion in 1996, is expected to grow at a rate of approximately 11.5% / year through 2000 when it is projected to be the eighth largest in the world. Currently, more than 360 domestic pharmaceutical manufacturers are operating in the country.

Most foreign firms do business in South Korea through joint ventures or by licensing their products. Until recently, trade barriers have been relatively strict in the country, and, often, foreign companies had to jump through many hoops—including extensive product testing and compliance with other regulations—to get their products approved and to market. New regulations that took effect on July 1, 1996, are aimed at opening up and streamlining the regulation process in South Korea by making rules more clear for foreign companies; however, despite these improvements, the process remains rigorous. Nevertheless, foreign medical companies continue to invest in South Korea and to develop and distribute their products there.

Thailand

Thailand, a country of more than 60 million people located north of Malaysia, has been one of Southeast Asia’s top economic performers recently, experiencing growth rates of more than 7% a year since 1988. Although the country’s per capita GDP ($5,970 in 1994) is not high compared with that of other Southeast Asian countries, strong economic growth is expected to continue.

Health Care Trends and Policies

Thailand has approximately 886 government hospitals and 322 private hospitals; as of 1995, the country’s person-per-doctor ratio was 4,473:1, and the person-per-hospital-bed ratio was 617:1. The Thai Ministry of Health has made major efforts to improve the quality of public health care in Thailand, including the Seventh National Health Development Plan (1992-1996), which resulted in huge increases in Thailand’s budget for health care from $1.3 billion in 1992 to more than $2 billion in 1996 (a 54% increase and approximately 6% of the total budget). At $73, per capita health care spending in Thailand is among the highest in the region.

The Thai health care system is a bit different from others in Southeast Asia in that all Thai citizens are entitled to some form of free, government-funded medical care, though most free services are used by the poor. To help shift some of the burden of paying for medical costs from the public to the private sector—and to encourage Thais to seek medical care rather than resort to self-treatment—the Thai government enacted a compulsory job-based health insurance program. This program, under Thailand’s social security plan, requires employers with more than ten workers, as well as employees and the government, to contribute the equivalent of 1.5% of each worker’s salary into a health insurance fund. The government believes workers covered under this plan (58% of the population) will be more likely to seek professional medical care because the costs will be paid for by social security.

The growth of private-sector health care in Thailand is further fueled by the increasing numbers of affluent citizens who can afford to pay for the higher-quality services offered by private facilities—a trend shared by other Asian countries. In 1996, private facilities supplied approximately 30% of Thailand’s health care services, more than double the percentage in 1993. The number of private hospitals also increased dramatically, growing by 44%, or 96 hospitals, from 1993 to 1995. One of the reasons for this increase is the Thai government’s programs to include investment in the health care industry. These include exemption of corporate taxes for up to five years and reductions on import taxes for medical equipment and supplies. Further, as already mentioned, more companies are contributing to employee health insurance (although such insurance does not usually cover employees’ families).

As is the case with much of the developing world, the disease patterns in Thailand are changing. Specifically, while malnutrition and parasitic infections are becoming less prevalent in the country, cardiovascular disease and cancer are becoming greater problems. One of the largest health problems in Thailand is the spread of AIDS; the number of AIDS cases reported in the country tripled from 1992 to 1993, and the number of full-blown AIDS cases is expected to reach 650,000 by 2000. Although the government has been taking action to fight the spread of HIV—and is expected to spend a lot more of its health care funds on the problem—major improvements in medical and preventive programs directed at AIDS are needed.

The Role of Foreign Medical Companies

Foreign medical companies have not been blind to the improvements and investment that have been taking place in the Thai health care industry. Thailand’s pharmaceutical industry grew by 7.2% a year from 1991 to 1995, and the industry is expected to grow by 12% a year from 1996 to the end of the century. Although these rates are high enough to attract foreign interest, what is even more convincing is the average annual sales growth of 16% experienced by members of the predominantly foreign Pharmaceutical Producers Association from 1990 to 1994. Although local companies focused on the generic drug market in Thailand account for approximately 60% of the total pharmaceutical market volume, they earn only 30% of its revenues. In contrast, foreign pharmaceutical companies are earning 70% of the generic drug market’s revenues with only 40% of its total volume. Keeping such opportunities in mind, many foreign medical firms have made huge investments in Thailand. The three largest foreign pharmaceutical companies in the country are Glaxo Wellcome, Hoffmann-La Roche, and Hoechst Marion Roussel, which in 1995 had sales of $35 million, $34 million, and $33 million, respectively, in Thailand’s $1 billion market.

The Thai government is encouraging foreign investment by changing patent laws and opening the government’s Pharmaceutical Organization to allow for more sales of foreign products to government hospitals.

Vietnam

While many other countries in Southeast Asia were experiencing a huge economic boom during the 1980s, Vietnam was still recovering from more than 40 years of war. By 1989, however, Vietnam was poised for a turnaround; its economy grew 7.5% in 1993 and 8.5% in 1994. Although the 74 million people in Vietnam have a relatively low per capita GDP, $1,140 in 1994, and although the country’s infrastructure, banking system, and legal system are not fully developed, many are optimistic about Vietnam’s economy and see the country as a rising star in Asia.

Health Care Trends and Policies

Because Vietnam is a communist country, its health care system differs from others in the democracies of Southeast Asia. Specifically, the Ministry of Health (MOH) in Hanoi controls almost all the health care services in Vietnam, including 10,305 health stations, 1,216 intercommunal clinics, 719 general hospitals, 78 specialized hospitals, and many other specialized clinics and health centers. In recent years, a few private hospitals have been established in Ho Chi Minh City, and a limited number of private medical practices are in operation. In 1995, Vietnam had a person-per-doctor ratio of 2,380:1 and person-per-hospital-bed ratio of 389:1.

To help pay for the medical care in this system, Vietnam in 1992 ended its subsidization of health care and moved to a medical insurance system, which covers state employees, including employees of foreign-invested enterprises. Under this system, the employee pays one-third of the cost while the employer pays the remaining two-thirds. This new system has been slow to catch on because of lack of confidence it and poor publicity. Further, it leaves many without insurance and adequate medical care.

Foreign contributions make up approximately one-third of Vietnam’s health care expenditures. The major donors are the United Nations Children’s Fund (UNICEF), the United Nations Food and Agriculture Organization (FAO), the United Nations Population Fund (UNFPA), and the WHO. In 1996, the World Bank approved two programs totaling more than $150 million to help control diseases and improve family planning in Vietnam until 2003. Plans such as these are aimed at the countless problems caused by poverty in Vietnam, where more than 25% of the population cannot afford daily basic food intakes, and infectious and parasitic disease are still major threats. The World Bank has been careful to develop programs that help solve the problems of the poor while encouraging a market-friendly environment.

In 1995, the Vietnamese government spent $230 million (an average of $3 per person) on health education, modernization of hospitals, training of medical professionals, and AIDS prevention—representing a 23.4% increase from 1994 spending. The Vietnamese government has identified six goals for improving its national health care system: consolidation regional health services, promoting prenatal and infant health care, strengthening basic hospital services, improving malaria control, improving immunization services, and ensuring adequate supplies of essential drugs and equipment for facilities that provide basic health care.

The Role of Foreign Medical Companies

As Vietnam’s economy has grown, so have the country’s medical products and pharmaceutical industries; this trend is expected to continue. Vietnam’s pharmaceutical market, in particular, is expected to grow from $300 million in 1995 to $800 million by the year 2000. In addition, foreign companies are starting to invest in the country. In 1996, 15 foreign investment projects, worth a total of $127.5 million, were under way. One of the most successful pharmaceutical joint ventures in Vietnam is the Groppe Rhône-Poulenc (France) / Medical Export-Import Company. Making mostly antibiotics, the joint venture had sales of $2.8 million in 1994, growing to $3 million in 1995. Successes like this one have caught the attention of other multinational medical manufacturers (such as Bayer, Novartis, Roussel-Uclaf, Hoffman-La Roche, Elf Sanofi, and Sondo), which are also beginning to invest in Vietnam.

Conclusion

The effects of Asia’s tremendous economic and population growth over the past decade have been widespread. This growth has created a need to change and improve the various health care systems of the region and has led many Asian countries to build and modernize hospitals and clinics as well as adapt diagnostic and therapeutic products. To help control the staggering costs of these improvements and adaptations, many countries are moving away from government-subsidized health care and towards private-sector solutions.

As living standards continue to improve throughout Asia, citizens are demanding greater access to higher-quality health care. Many who can afford high-priced medical services do not hesitate to bypass government-sponsored care and instead use the more advanced and expensive services of private hospitals within their own countries and even in other nations in the region. To meet the growing demand for sophisticated medical treatment, the number of private hospitals has increased dramatically in recent years. Because care at these private hospitals is frequently covered by private health insurance, which often places few limitations on treatment, costs have increased with the quality of care.

The improved access to quality health care in many Asian countries has sparked a boom in the demand for all sorts of medical products and services. Companies marketing medical devices and pharmaceuticals in the region have benefited from this increased demand, and the growth rates for each of these industries is expected to exceed 10% annually in many Asian nations through 2000. Between 1996 and 2000, Vietnam is expected to register the highest annual growth rate (20%) in pharmaceutical sales, followed by China (15%), Indonesia (13%), and Thailand (12%).

Furthermore, because health care spending as a percentage of GDP is relatively low in most Asian countries, when compared with such spending in the United States and other Western nations, Asia’s health care markets have plenty of room for growth. Foreign companies have responded to this opportunity by investing heavily in pharmaceutical, medical device, and biotechnology facilities in Asia, often with encouragement from local governments. With predictions that, by 2020, seven of the ten largest economies will by in Asia, companies are diving into the market, hoping to cash in on this expected growth.

About the Authors

Ames Gross is president and founder of Pacific Bridge, Inc., a Washington, D.C.-based consulting firm that specializes in linking Western pharmaceutical and other health care companies with Asian partners as well as in conducting primary market research and building distributor networks in Asia. Pacific Bridge works with strategic affiliates throughout Asia that have been carefully selected for their expertise and track record of successfully helping U.S. medical companies to increase sales, establish joint ventures, and conduct market research. Mr. Gross has written extensively about Asian medical and business issues for journals in the United States, Europe, and Asia. He also frequently serves as a featured speaker at medical conferences and meetings. Before establishing Pacific Bridge in 1988, Mr. Gross gained broad experience and contacts in Asia while working at three major Wall Street firms—First Boston, Salomon Brothers, and Smith Barney—where he completed more than $500 million in Asian cross-border transactions. Mr. Gross holds a B.A. from the University of Pennsylvania and M.B.A. from Columbia University.

Elaine C. Conavay has worked at Pacific Bridge, Inc., for two years, writing many articles on Asian health care issues. She has traveled extensively in Asia and lived in Singapore for five years. She is currently pursuing her M.A. in science technology and public policy at George Washington University in Washington, D.C. Ms. Conavay holds a B.A. in international relations and East Asian studies from American University in Washington, D.C.