investing in healthcare in vietnam - kpmg in healthcare in...working in vietnam since 2006 and has...

Investing in Healthcare in VietnamKPMG Vietnam Webinar30 November 2017

2© 2017 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Document Classification: KPMG Public

“Investing in Healthcare in Vietnam” Agenda

Investing in Vietnam Webinar Series, KPMG Vietnam, 30 November 2017

14:00 - 14:05 Introduction

14:05 - 14:15 Vietnam healthcare system at a glance

14:15 - 14:25 Legal forms of operation for healthcare sector in Vietnam

14:20 - 14:40 Market trends and investment opportunities

14:40 - 15:00 Question &Answer



2

Question and Answer SessionPlease submit questions in chat window (bottom right corner of screen) any time.

Don’t forget to hit SEND.

I will compile the questions and submit them to the speakers in the last 20 minutes of the webinar, as time permits



Key PresenterMichal Jacob is an Israeli lawyer and a certified foreign lawyer by the Ministry of Justice in Vietnam. She has been living and working in Vietnam since 2006 and has over 22 years of professional legal and business management experience both in Israel and Vietnam focusing on the Healthcare and Life Sciences sector. Michal has worked with public and private healthcare providers, regulators and insurers both in Israel and in Vietnam and was the lead advisor to the second largest Health Maintenance Organization (HMO) in the world.

Michal’s vast experience in healthcare has provided her with in-depth understanding of private and public healthcare systems, including insurance and reimbursement plans, with a pragmatic approach to support clients in achieving the objective of improving efficiency and quality of healthcare services.

Michal Jacob Director &Head of Healthcare and Life SciencesKPMG [email protected]

mailto:[email protected]



Introduction



Vietnam demographics – Age structure

0–14 years 24.6%

15–64 years 69.8%

65 and over 5.5%

24.60%

69.80%

5.50%

0-14 15-64 65 and over



Young consumer baseA young population and rapid adoption of modern technology create an exciting window of opportunity for change

…Together with rising disposable incomes, a golden demographic structure and higher living standards have set Vietnam apart as one of the most attractive investment destinations in Asia

62.3%



Consumption growthA young population and rapid adoption of modern technology create an exciting window of opportunity for change

7.8 8.3

10.812.2

13.1 13.815.1

16.017.2

18.619.9

6.9%6.2%

7.0% 7.2% 7.1% 7.2%7.4%

7.3% 7.3% 7.3% 7.3%

0%

2%

4%

6%

8%

5

10

15

20

25

% G

DP

US

D b

illi

on

Healthcare spending

Healthcare spending (% of GDP)

Stable growth at 7.3% of total GDP

Projected Vietnam healthcare expenditure 2010-2020

86 103

115 128

141 147 154 164

175 185

196

-

50

100

150

200

250

US

D B

illio

n

Vietnam personal disposable income in 2010 - 2020



Facebook Users – Vietnam – 2014 - 2020

37.334.7

31.8

25

39.842

43.9

2014 2015 2016 2017 2018 2019 2020

Number of users in millions

Vietnamhealthcare system ata Glance



Real GDP growth fluctuated over thelast five years and is expected to increased slightly to y-o-y growth rateof 6.6% by 2026- Real GDP growth of Vietnam in 2016 is higher

than some ASEAN countries such as Thailand (3.2%), Malaysia (4.2%), Indonesia (5.0%), Myanmar (5.4%), Singapore (2.0%), etc.

- The growth in real GDP in the next ten years is driven by the increasing FDI inflows, higher income, continuing trade in goods and services, foreign trade agreements and government’s objective to industrialize the country by 2020.

- Subsequently, GDP per capita is anticipated to increase at CAGR of 9.4% to reach USD5,231 by 2026, thanks to a fast growing economy.

1,504 1,718 1,862 2,007 2,044 2,1282,297 2,511

2,7473,012

3,3013,618

3,9644,346

4,7675,231

6.2

5.2 5.46.0

6.76.2

6.5 6.7 6.5 6.5 6.5 6.5 6.6 6.6 6.6 6.6

Real GDP Growth (% y-o-y)

Source: Business Monitor International

GDP per capita (USD)

11-16: 7.2%

16-21F: 9.4%

Key macroeconomic indicators

National-level demographic and socioeconomic indicators (1 /3)GDP INDICATORS (2011 – 2026F)CAGR of GDP per capita



3

Disposable income per household inVietnam in 2016 is expected to grow in-line with the growth in economic trends- There will be an upward trend in Vietnam

disposable income per household by 2021 to reach USD4,604 at CAGR of 3.8% (2017–2021F) which is in alignment with the economy’s growth. Increasing income indicates higher living standards, better awareness on health and well-being and potentially expenditures on healthcare and related services

In 2016, middle- and high-incomeclasses (Class A, B and C) accountedfor 28% of Vietnam‘s population- The number of people classified into the middle

and high income social classes is rising and is expected to reach 33 million by 2030, providing positive indications and opportunities for private healthcare services

Note:(a)Only includes population between the age group of 15 – 65+ years old(b)Social Class data refer to the number of individuals whose incomes fall

within a specified range of the averagegross income of all individuals aged 15+ in that country or region. Social Class A: +200%; Social Class B: between 150% and 200%; Social Class C: between 100% and 150%; Social Class D: between 50% and 100% and Social Class E: less than 50% of the average gross income.(c)Based on exchange rate of VND/USD 22,650

3,412 3,386 3,424 3,498 3,687 3,820 3,942 4,088 4,256 4,430 4,604

2020F 2021F2011 2012 2013 2014 2015 2016 2017F 2018F 2019FSource: Business Monitor International

41% of 72.6 millionpeople



6% of 72.6 million people


E

D

C

B

A

Source: Euromonitor

Average gross income per year: USD2,358(c)

SOCIAL CLASS DISTRIBUTION IN 2016 (AGED 15+) (a)(b)

DISPOSABLE INCOME PER HOUSEHOLDFROM 2011 TO 2021F (USD)


National-level demographic and socioeconomic indicators (2/3)



By 2025, Vietnam’s population is expectedto reach approximately 102.8 million atCAGR of 0.94% in the period 2015-2025F

- In 2016, Vietnam enjoys what is known as the “golden population structure”, which means for every two people or more working, there is only one dependent. This demographic bonus provides Vietnam with a unique socio-economic development opportunity to take advantage of the young labor force and push its economic growth

- However, it is observed that the population in Vietnam is aging rapidly, and the proportion of older people will continue to increase which boosts demand for healthcare services

3,240

1,192

726843

1,339

3456

882

580421

555

5-9yrs 3860 3,5050-4yrs 4089 3,677

10-14 yrs

60-64 yrs 1632 1,93755-59 yrs 2267 2,52250-54 yrs 2718 2,83845-49 yrs 3038 3,07740-44 yrs 3351 3,39035-39 yrs 3627 3,66030-34 yrs 4052 4,03525-29 yrs 4452 4,35720-24 yrs 4335 4,15515-19 yrs 3475 3,289

80+ yrs75-79 yrs70-74 yrs65-69 yrs

Male Female

Working age population Total (15-64

years) = 70% of total pop

YoungpopulationTotal (0-29

years) =49%of total popn

Source: Euromonitor

22,897 20,949 21,609 22,557 22,780

24,636 25,703 24,473 22,230 20,537

31,226 36,026 41,179 45,651 49,071

5,550 5,7956,311 7,923 10,376

84,309 88,47393,572

98,360 102,763

2005 2010 20150-14 yrs 15-29 yrs

2020F30-64 yrs

2025F65+ yrs

Source: Euromonitor

POPULATIONSIZE IN VIETNAM (‘000)

POPULATION BY AGE IN 2016(‘000)


National-level demographic and socioeconomic indicators (3/3)



The total health expenditure has increased over the years and is forecast to continuean upwards trend with 58.1% contributedby public healthcare expenditure by 2021- Vietnam’s total healthcare expenditure accounted

for 7.5% of its total GDP for 2016, which is higher than selected developed ASEAN countries such as Thailand, Singapore and Malaysia (6.2%, 6.1% and 4.5% respectively). By 2021, it is forecasted to decrease slightly to 7%;

- The public healthcare expenditure overtook the private healthcare expenditure since 2012 due to the governments’ social health insurance program to increase prepayment in the healthcare sector;

- In the next 5 years, public healthcare expenditure is predicted to increase at a CAGR (2016 – 2021F) of 9.5% compared to the period of 2011 to 2016 (17.2%). This is partly due to the government’s effort in promoting partnership between public and private healthcare providers to share the cost;

- Private healthcare expenditure is expected to grow at a CAGR of 7.5% with a large part of the growth due to increased insurance coverage for employeesSource: Business Monitor International

3.8

5.86.5

7.17.6

8.49.0

9.910.8

11.9

4.6 5.05.7 6.0 6.3 6.7 7.1

7.68.2

8.89.6

6.2 7.0 7.2 7.1 7.2 7.5 7.3 7.2 7.2 7.1 7.0

2011 2016 2017F 2018F 2019F 2020F 2021F2012 2013 2014 2015

Public expenditure (USD billion) Private expenditure (USD billion)

Healthcare expenditure (% ofGDP)

CAGR 11-16 12.5% 17.2% 7.9%CAGR 16-21F 8.6% 9.5% 7.5%

Total healthcare spending (USD billion)

8.310.8

12.213.1 13.8

15.016.1

17.419.0

20.722.7

13.2

PUBLIC AND PRIVATE HEALTHCARE EXPENDITURE (2011 – 2021F)

Overview of healthcare indicators

Healthcare expenditure



Central

Central-affiliated province/city

District

Commune

Source: World Health Organization, Vietnam’s Ministry Of Health

Commune Health Stations

District Health Centers

HospitalsClass II, III

State-level Departments of

health

Hospitals:Class I, II

Other ministries

- The Ministry of Health (MOH) of Vietnam looks after the health sector for the government. MOH manages a number of health institutions including national hospitals, research and institutes, universities and colleges.

- Vietnam operates a decentralised healthcare system where autonomy is given at the province, district and commune level to provide guidance, monitoring and supervision of the healthcare policies to their respective areas

- Other ministries including MOD, MOT, MOIT, and MARD run health-care network of hospitals and clinics

Hospitals:Class Special, I

MOH

- There are 63 provinces in Vietnam and each province is divided into districts

- Provincial health institutions consists of general, specialized hospitals, and medical centers. Besides, each province usually has a medical college or secondary medical school offering programs in medicine, nursing, midwifery, medical technology and pharmacy depending on the province’s medical demand.

- Apart from general hospitals, intercommune polyclinics, and maternity homes, district health centers also offers medical and preventive services.

- Other department such as the population, food safety management agencies involve in health sector depending on the population size and local provisions.

- Commune health stations are responsible for providing primary health care services for people in the commune.

ORGANISATIONAL STRUCTURE OF HOSPITAL AND HEALTHCARE SYSTEM IN VIETNAM

Overview of healthcare indicators

Hospital system in Vietnam



1,117

133

1,250

2011

HO

SPIT

ALS

2016Private

Private 13.7%

3.4%

3.6%

79.2%Public 86.3%

Ministry ofHealth

Other ministries/State-owned corporation

Department ofHealth

1,161 hospitals

1,346hospitals

In 2016, there was a total of 1,346 hospitals in Vietnam with the majority of public hospitals directly managed by departments of health of each province / city, while the remaining owned by the Ministry of Health, other ministries and state-owned corporations.- In the last five years, private hospitals increased by 52 hospitals due to the

government's promulgation of public-private partnership (PPP) policies to help reduce the overload of public hospitals, as well as adjustment in health insurance policies in 2016 that bring greater revenue for private hospitals.

- Meanwhile, the number of public hospitals expanded by 44 hospitals over the last five years with financial support from the government.

- Number of hospital beds in the last five years increased by 45,400 beds contributed both by the expansion of public and private hospitals. The government aims to grow the number of private hospital beds to account for 20% of total hospital beds by 2020, through the implementation of public and private partnership.

Source: General Statistics Office, Business Monitor International

Public


1,346

CAGR 11-16

1.5%

185 6.8%

0.8%

1,161

203,200240,700

14,185209,485

6,285

254,885

BED

S

2011Public


2016Private

3.4%

17.7%

CAGR 11-16

4.0%

NUMBER OF HOSPITALS IN VIETNAM (2011-2016)

NUMBER OF HOSPITAL BEDS IN VIETNAM(2011-2016)

HOSPITALS BREAKDOWN BY PUBLIC AND PRIVATE

Overview of healthcare landscape

National-level hospital infrastructure

Legal formsof operationin healthcaresector



Business Form of operation

Scope of operation of legal entity

Foreign participation ratio

Local partner required (Y / N)

Capital requirement(Yes/No/How much)

Other requirements

Notes

Healthcare treatment

- Legal entity: 100% ForeignInvested Enterprise (FIE) and JointVenture (JV)

- Business Cooperation Contract (BCC - not popular)

- Rep. Office (RO) for nonprofit purposes

- Hospital services- Medical and

dental services

- Exclusion: Emergency evacuation services, homecare and nursing services are not committed to open to foreign investors, foreign investment would be subject to approval on case-by-case basis.

100% No Yes

Capital investment requirement: - Hospital:

USD20 million- Polyclinic:

USD2 million- Specialized

clinic: USD200,000

- Qualified personnel and facilities

- Operational licenses

Family Medical Practice, a 100% FIE, was granted with emergency evacuation services, homecare,nursing services

Pharma-ceutical

- Legal entity: 100% FIE and JV

- RO (for nonprofit purposes)

All activities (manufacturing, import, export, storage, testing), except for distribution

100% No No, but must be appropriate for the business



No FIE licenses for import of pharmaceuticals as of today

Legal Forms of Operation in Healthcare (1/2)



Business Form of operation

Scope of operation of legal entity

Foreign participationratio

Local partner required (Y / N)

Capital requirement(Yes/No/How much)

Other requirements

Notes

Medical device

- Legal entity: 100% FIEand JV

- RO (for non-profit purposes)

All activities (manufacture, import, export, distribution)

100% No No, but must be appropriate for the business


- Operation licences

Medical training &education

- Legal entity: 100% FIE and JV

- RO (for nonprofit purposes)

University, short-term training, vocational training

100% No YesCapital investment requirements: - University:

USD6,500/student, minimum USD13 million

- Vocational training school: USD2,600/ student

- Short-term training school: USD900/student



Hoa Lam Shangri-La obtained approval from PM for setting up a foreign-invested international medical and pharmacy university in 2016.

Legal Forms of Operation in Healthcare (2/2)

Markettrends & opportunities



Global drivers on healthcareGlobalization, consumerism and prosperity are major drivers that impact healthcare in Southeast Asia, including Vietnam

Globalization – world is becoming smaller: cheap air travel, connectivity, internet, medical tourism

Consumerism - Increased awareness and self-decision making in choosing of medical treatment options: potential treatment, available hospitals and choice of physicians

Prosperity – Increasing disposable income, financial independence and health awareness has led to consumers spending more on health prevention andtreatment

Consumerism

Globalization Prosperity



Market trends – Vietnam National GoalsFrom Vietnam Sustainable Development Strategy and Goals for 2011-2020 (to be extended to 2030):

— To raise the quantity and quality of healthcare services— To speed up comprehensive healthcare— Focusing on proactive preventive medicine, timely and effectively control epidemic

diseases, early detect and timely cure diseases— Consolidate and enhance medical system towards diversification of healthcare models

and stakeholders, in which public healthcare establishments take the leading role— Establish the system for provision of comprehensive healthcare services, focusing on

basic health services and primary healthcare services— Improve the quality of healthcare rehabilitation services at all levels— Reduce patient overload in central-level hospitals. Upgrade infrastructure and working

conditions of communal or ward medical stations— Speed up human resource development for healthcare sector and social workers; train

community health workers, medical technicians.



Market - Key trends

Shifting from Hospitals to Primary Care and Home Care, and developing Medical Centers of Excellence

Universal Healthcare Coverage and Insurance reformShifting towards Top-up instruments and Private insurance

Health IT and digital solutions

PPP (Public-Private-Partnership) in healthcare

Next growing medical devices and pharmaceutical manufacturing industry



Market - Key challenges Increase public trust and quality of care

– Patient journey and experience

Patient education and change of mindset

Training, medical education and qualifications

Quality and safety standards (JCI)

Healthcare for all – universal coverage


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The KPMG name, logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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