The general life expectancy of a population tends to improve over time amidst growing affluence which boosts health, combined withadvancements in medical science and technology. In tandem with the Malaysian Government’s plan to reform the healthcare sector, industry players may be the main beneficiaries of this trend. Our top picks areKPJ Healthcare, IHH Healthcare and Caring Pharmacy .

Longevity. In our 4 Sep Thematic Report: The Next Generation, we stated that the United Nations (UN) forecasts Malaysia to become an ageing nation by 2030, before the population of senior citizens eclisesthe youths (aged 15 years and below) in 2050. Typically, this could lead to a higher incidence of complex cases that are relatively more prevalent amongst elderly patients. The higher life expectancy would also trigger growth in the aged care facility business which is still in its infancy.

Healthcare reform. In view of the ageing population and to improve the existing healthcare system, the Malaysian Government initiated a reform plan in 2009 called “1Care for 1Malaysia”. The plan aims to addressthree key issues: i) governance reform, ii) delivery systems reform, and iii) healthcare financing reform. This would integrate the current 2-tier, private and public sectors into a single platform and boost Malaysia’s healthcare expenditures to over 7% of GDP (similar to those in developed nations) from 4-5% currently, while reducing public healthcare expenditure, currently at over 50% of the nation’s total health expenditure, to 30-40%.

Major reforms. Under healthcare financing reform, social healthcare insurance (SHI) would be introduced – where each citizen would have health insurance. Existing personal insurance could compliment SHI.This would allow patients to consult specialists who are mainly (c.70%) in the private sector. The other potential restructuring would be the segregation between the general practitioners’ (GPs) role to consult and diagnose patients and the pharmacies’ role to dispense medicine. The segregation could lower the cost of medication through bulk purchases and allows the Government to have tighter price control – which should boost access to medication and allow faster access to the latest drugs.

The beneficiaries. We believe the ageing population trend and reform plans would benefit the companies within the private sector ranging from private hospital operators (KPJ Healthcare and IHH Healthcare), pharmaceutical manufacturers (CCM Duopharma, Pharmaniaga and Hovid) and retailers (Caring Pharmacy), medical device manufacturers as well as aged care facility operator (KPJ Healthcare). We also do not rule out opportunities for new companies that can innovate ad are able to occupy a niche in the healthcare sector. The Government has also outlined several Economic Transformation Programme (ETP) initiatives to expedite industry development.

What we expect Malaysia’s life expectancy rate has steadily increased to 75 years in 2014 from 60 years in 1960. By 2030, the UN forecasts Malaysia to be an ageing nation , with almost one in seven of the country’s population being 60 years or older with the senior population eclipsing youths in 2050 (see Figure 1).This clearly underlines the growing need for healthcare services as incidences of complex cases tend to be higher amongst elderly patients compared to younger patients. Under the ETP, healthcare has also been identified as one of the key sectors driving the Government’s effort to turn Malaysia into a high-income nation by 2020.

The status quo The demand for healthcare services has also risen strongly in recent years, as lifestyle illnesses become more prevalent, health awareness rises, medical technology advances forward, and as affluence grows and the adoption of health insurance coverage increases.

The strain on the public healthcare system has become more apparent in recent years. The volume of outpatients to inpatients (OPD/IPD ratio) for the public sector rose to 24x in 2013 from 18x in 2008, while that for the private sector inched up to 3.8x by 2013 from only 3.3x in 2008. While the OPD/IPD ratio is typically used to illustrate the rate of converting outpatient volume to inpatient admissions, we believe it also provides an apt illustration of the strain faced by public healthcare.

This further strengthens the observation made in a publication by the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) titled “Health Policy in Malaysia: Three Central Policy Issues” which highlighte long waiting periods for patients in the public healthcare sub-sector. Furthermore, the report also estimates that nearly 70% of medical specialists are in private healthcare, despite managing only 30% of complicated cases that arise in Malaysia.In 2009, the Malaysian Government launched “1Care for 1Malaysia”, a frameworkunderpinning the reform of Malaysia’s healthcare delivery system. It aims to address three key issues: i) governance reform, ii) delivery systems reform, and iii) healthcare financing reform. One measure that has been implemented is the establishment of Klinik 1Malaysia, ie clinics located in high-density urban areas. This is a part of thereform of delivery systems that aims to alleviate primary care patient volumes at major government hospitals and district clinics that are more focused on secondary and tertiary care.

In essence, such reforms are expected to further enhance Malaysia’s exemplaryhealthcare delivery system (recognised by the World Health Organisation (WHO) in a 2002 report) by integrating the current 2-tier system, ie private and public healthcare,into a single-tier one. In one fell swoop, the reform is expected to boost Malaysia’shealthcare expenditure to over 7% of GDP (comparable to healthcare expenditure of developed nations) vs 4-5% (the minimum requirement set by WHO). It would also reduce the Government’s healthcare expenditure, which is currently over 50% of the nation’s total health expenditure, to 30-40%.

Source: RHB Research - 28 Sep 2015