by Tan Shih Ming
SINGAPORE, March 15 (Xinhua) -- While Singapore has been one of the popular destinations for the rich who seek medical treatment, experts have mixed views about the outlook of private hospital operators that play pivotal role in medical tourism in the city state.
Nobody doubts that the medical service sector of Singapore should remain strong over the medium term. Health care expenditure in absolute terms and as a percentage of the gross domestic product continues to be driven by multiple factors, such as economic growth, increased access to healthcare services, an aging population and associated healthcare needs, and government expenditure on general healthcare.
OCBC Investment Research supported this optimistic view, saying that the growth trajectory of the healthcare sector remains positive in general, aided by the rising affluence in the region which has bolstered the purchasing power of the middle-class.But the rosy picture portrayed for the sector might have overlooked some of the micro risks.
Credit Suisse Research said while stable revenue growth of the private hospital operators is probably a given, there are also some underlying risks that may arise from inherently volatile margins and high capital expenditure.
For instance, IHH Healthcare, which operates private hospitals in Singapore, Malaysia and Turkey, expects margins to remain volatile in the near term as new hospitals are starting up.
Hospital groups with an expanding hospital network often face margin pressure because of losses and competition from new hospitals. They require huge fixed asset investments such as land, buildings and equipment before they can start their expanded operations.
After they commenced operations, new hospitals will typically need two to three years to reach acceptable capacity utilization levels.
Margin pressure of medical service providers also comes from the regulatory environment in a variety of ways, such as cap on patient fees, high license fees, higher public sector investment, and restrictions on import of foreign labor.
As Singapore is tightening the inflow of foreign labor, private hospital operators also fret the rise in labor cost and difficulties in recruiting right talents liked specialist doctors and experienced nurses.
With profit margins in Singapore business probably closing to their peak now, Raffles Medical, a private hospital group in Singapore with a flagship hospital and 72 clinic networks, looks to expanding its presence in other markets for further growth opportunities.
However, this growth strategy may not be easy to execute, as the regulatory frameworks of many countries are still not conducive to very active and controlling foreign equity participation.
While Raffles Medical appears to be in the run for opportunities in Hong Kong through bidding for a new hospital and the Chinese mainland through talks to build a hospital in Shekou, Guangdong Province, Credit Suisse Research said it is too early to cheer the move of the Singapore private hospital operator.
Even if Raffles wins both projects, the Swiss research house is not overly optimistic given lack of clarity on the projects themselves and Raffles' yet untested track record overseas.