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ANALYSIS; Indonesia’s healthcare sector: Coordination of Benefits (COB) rescue
At this stage, on the back of the government’s new National Health Insurance (JKN) program created by the Health and Social Security Agency (BPJS Kesehatan), the Coordination of Benefits (COB) provision is changing the country’s healthcare landscape
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At this stage, on the back of the government’s new National Health Insurance (JKN) program created by the Health and Social Security Agency (BPJS Kesehatan), the Coordination of Benefits (COB) provision is changing the country’s healthcare landscape.
While the COB is not new, its ability to now be combined with the JKN and private insurers should benefit the industry.
By subscribing to the JKN, private insurance premiums can fall by up to 40 percent, creating a game changer, in our view. Hence, we upgrade our sector rating to “overweight”, from “neutral”.
The COB can now offer patients and companies access to better-quality medical services through cheaper premiums, but with similar flexibility compared to normal private insurances.
From the perspective of insurance users, this can pave the way for higher productivity by using private medical providers (i.e. clinics and hospitals).
From the point of view of hospitals, the COB, combined with the JKN, could raise occupancy rates and result in higher profitability stemming from increased margins and reduced receivable days by shifting toward private insurers’ faster reimbursement method from the government’s BPJS Kesehatan (the JKN’s agency).
However, this is limited to BPJS-participating hospitals. In contrast, non-BPJS hospitals might see migration of their in- and out-patients. Separately, the COB would also be beneficial for BPJS-participating insurance companies (i.e. higher client traffic) and raise BPJS participation rates, especially from the corporate sector because of lower private insurance premiums.
The rise in healthcare needs has put some pressure on the state budget. After two years of operation, the BPJS Kesehatan is suffering total deficits of approximately Rp 20 trillion (US$1.48 billion), of which
Rp 3.3 trillion accrued in 2014 and Rp 5.8 trillion in 2015, the agency expects deficits to blow out by another Rp 10 trillion for this year.
This poor performance of the BPJS Kesehatan is the result of several factors. First, a lack of cross subsidies. Second, an adverse selection phenomenon. And finally, a discrepancy in calculating premiums and claims.
Nevertheless, given President Joko “Jokowi” Widodo’s support for healthcare, especially for those at the grassroots level, we see commitment from the government to ensure continuity of this program, given its additional contribution to fund the deficit by injecting Rp 5.6 trillion in 2014, Rp 3.5 trillion in 2015 and Rp 6.83 trillion for this year.
Our top pick among the listed private hospital players is PT Siloam International Hospitals Tbk (SILO), as it has the widest hospital network in the country and has embraced the JKN into its business model. Apart from higher revenue on rising patient volumes, SILO is set to improve margins on higher bed-occupancy rates and a shorter ramp-up period for its new hospitals to reach maturity (from five to three years).
Meanwhile, we maintain our “hold” call on PT Mitra Keluarga Karyasehat Tbk (MIKA) for its conservative expansion plan and likely loss of patient market share as the government’s new COB program prohibits patients to obtain treatment from non-BPJS hospitals.
In the pharmaceutical sector, PT Kimia Farma Tbk (KAEF) should benefit from the COB scheme as its clinics are participants of both the JKN and private insurance (Inhealth Insurance). However, because of KAEF’s more demanding valuation, we prefer PT Kalbe Farma Tbk (KLBF) as a turnaround play on recovery in branded generic drug consumption due to the COB.
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The writer is a research analyst at Bahana Securities.
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