Universal healthcare coverage in the fourth largest nation in the world: JKN in Indonesia and the opportunities for medtech markets

Home to a population of 258 million, Indonesia is the 4th largest country in the world, behind China, India and the US. However,Indonesia’s spending on health care totaled only 2.8% of GDP according to the data from WHO Global Health Expenditure Database and the TforG myTools platform. Compared to the global average of 9.9%, its total expenditure for health is among the lowest in the world.

The Jaminan Kesehatan Nasional (JKN) – Universal healthcare program

In order to make healthcare services affordable and available to everyone in Indonesia, the Indonesian government launched Jaminan Kesehatan Nasional (JKN) in January 2014, a scheme to implement universal health care in Indonesia. JKN initially covered around 120 million citizens, who were already engaged with some type of social health insurance (SHI) schemes, under a fund-management agency called Health-BPJS. The targeted population coverage is around 250 million people, to be covered by 2019. When this goal is achieved, JKN will be the largest social health insurance program in the world.

Under JKN, all Indonesians will receive coverage for a range of treatments via health services from public providers as well as those private organizations that have opted to join the scheme. The formally employed workers pay a premium worth 5% of their salary, with 1% being paid by the employee and 4% being paid by their employer. Informal workers and the self-employed pay a fixed monthly premium.

The Indonesian government maintained the JKN program as a top priority, although the initiative saw a challenging launch due to regulation disparities, poor infrastructure, inadequate medical staff, and ultimately, funding shortfalls.

The implementation of the JKN is expected to bring plenty of opportunities for pharmaceutical companies and medical devices providers, Records have shown surging demand for health and medical services since the JKN program rolled out.

The future of healthcare markets under JKN

The outlook for medtech and pharmacy is largely positive owing to the high potential of the market. The increased healthcare infrastructure spending has presented new opportunities for both medtech and pharmaceutical players. To optimize this potential, medtech and pharmaceutical players will need to tailor their products to the types of facilities they are selling to. For example, promoting the cost-efficiency of products is likely to resonate the strongest with the majority of healthcare service providers (e.g. public hospitals). Currently BPJS reimbursement schedules endorse the use of generics, with more than 70% of drugs on the approved reimbursement list being generics. Local generic suppliers are likely to benefit the most from these recent developments.

Pharmaceutical industry – growth of generics and local partnerships

In 2014, the pharmaceutical industry reflected 7.6% growth in sales, mainly driven by the launch of JKN, representing a market value of USD 5.3 billion. The pharmaceutical market is estimated to have grown between 10-12% in 2015, reaching USD 6 billion.

The most likely beneficiaries are local pharmaceutical companies producing generic drugs, which already have a 70% share of the local drug market by volume. In order to reduce costs, according to Health Minister Nafsiah Mboi, doctors participating in the JKN will have to adhere to a government formulary, which consists of 92% generics and 2.5% innovator drugs. Dental materials and diagnostics account for the rest.

All foreign pharmaceutical companies have to produce their drugs in Indonesia or forge a partnership with a local manufacturer; otherwise they will not be granted drug approvals. The implementation of JKN will leave the current regulatory restrictions on foreign pharmaceutical companies unchanged. Market barriers to growth remain, including a cumbersome approval process for medicines and a long-standing requirement for foreign drug companies to have a manufacturing facility in Indonesia before they can distribute their products.

Medical technology market – cost-effectiveness and patient comforts

Considering the substantial gap between the service provided and the current demand, along with a geographically diverse country, technology could play an important role in addressing some of Indonesia’s healthcare challenges.

The medical device market is estimated to grow from USD 673 million in 2013 to USD 1.22 billion in 2018 at a CAGR of 13%. Diagnostic imaging equipment and orthopedic implants are the fastest growing products in the market. About 97% of medical devices in Indonesia are imported, due to a shortage of locally established manufacturers.

Medtech players are also likely to face concerns with regards to cost and profitability, especially in rural areas where supply is the scarcest and the healthcare service provision market receives support from the central government. Within the higher-end market, which is expected to develop from patient frustrations with the undersupply and overcrowding in hospitals participating in JKN schemes, medtech players should target the customers differently. In contrast to cost-effectiveness, patient comfort and wellbeing should be emphasized.

Opportunities in the private sectors – high-end provisions and process efficiency

As a result of this universal healthcare insurance program, healthcare spending is estimated to increase by about 200% by 2020. The increased healthcare demand will result in private health insurances playing a larger role by providing complimentary or additional coverage for services not included in JKN.

The Health Ministry has set low reimbursements levels for hospitals to avoid the system becoming insolvent. Although a large number of hospitals have signed up for JKN, the low reimbursements are eventually likely to dampen the interest of private clinics and hospitals to sign up, which would in turn lead to overcrowding in the state facilities. This would also limit the quality of health care and force those who can afford it to seek higher quality care elsewhere, most likely through private insurance providers.

Nonetheless, there are still pockets of opportunity for the healthcare service provision market in specific areas. Opportunities appear to exist in two areas: high-end service provisions, and hospital efficiency, where improvements could raise revenue flows.

Ministry of Health data shows that Jakarta and East Java have very high hospital bed occupancy rates (BORs) of 132.3% and 111.8% respectively, indicating that despite these regions possessing the most concentrated and furthest developed healthcare infrastructure, the demand for healthcare services in these regions far exceeds the supply. Other than in Jakarta and East Java, the average hospital BORs are low, mostly within a 50% to 75% range. This compares with an over 80% BOR average in the South-east Asia region; yet patients still experience long waiting times for treatment in hospitals across Indonesia, indicating that there is an immense opportunity to improve hospital workflows, processes and efficiency.

Meanwhile, as private sector employees continue to demand higher quality healthcare benefits and/or additional value-added services, some of the more affluent patients are expected to turn to private insurers and private healthcare service providers, facilitating the market growth for higher-end private providers. This will be particularly noticeable if Indonesia’s economy grows robustly, boosting the growth of the middle class. With higher spending power and willingness to pay higher premiums for higher quality, the middle-class offers a huge untapped market for private healthcare providers.

Private insurance companies have also expressed interest in working together with the JKN program. A Coordination of Benefits (CoB) scheme offers private insurers the chance to capture the middle segment of the market by offering upgraded treatment (such as patented drugs) or add-ons (e.g. better rooms) to the basic healthcare as guaranteed by the state. The details of the CoB agreement between private insurers and BPJS Kesehatan have yet to be finalized.

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About Dr. Huanpo Ning

Dr. Huanpo Ning is a PhD at Donghua University, Shanghai and is TforG's correspondent in the AsiaPac region. He reports on the local healthcare markets & trends, and investigates the latest healthcare reforms in the region.