Singapore’s healthcare system has been held up as an example for other governments to follow. But residents are growing old, and tired of ever-increasing costs.

SINGAPORE (Mar 18): It was turning into a long-drawn-out ordeal. For six weeks, Angeline Yong’s septuagenarian father had complained of pain in his stomach, but doctors at the GP clinics simply sent him home with instructions to “eat more regularly”. The housewife decided to bring him to Singapore General Hospital, where he was kept under observation. After nine hours, she was told he needed to be admitted. The two waited another two hours for a subsidised bed before Yong had enough and left. She took her father to Mount Elizabeth Medical Centre, where he was admitted just 30 minutes later with $400 out-of-pocket cost — thanks to the family’s private insurance.

“The cost is very different, but no point talking about money after he dies,” Yong says. She estimates that the difference between the fees charged by the private hospital and those for subsidised care in the restructured hospital would have been about $15,000, not taking into account insurance.

Others have told The Edge Singapore of their choice to turn to private healthcare service providers because of long wait times in restructured hospitals or polyclinics, and the belief that they would receive better and quicker care in the private sector. More importantly, they can afford it, having bought private medical insurance for just such situations.

Like Yong, about two in three Singapore residents have Integrated Shield Plans, which is a mix of public and private insurance plans that cover patients for a higher standard of care. About 60% of these policyholders have coverage for private hospital stays, and half of them have bought policy riders that cover the deductible and co-payment portions of their bill, which means they do not pay anything for their treatment. This group of people are racking up bills that are 20% to 25% higher than those who co-pay for their treatment, according to the Health Insurance Task Force (HITF) report published in 2016.

The number of hospital admissions in the private sector rose 38% between 2010 and 2017 to 140,229 admissions. While these figures include non-Singaporeans and permanent residents, at least three private hospital providers say the majority of their revenues or patients are Singaporeans and PRs, signalling the growth of the private healthcare space. By contrast, public hospital admissions increased 32% between 2010 and 2017 to 453,559, according to government data.

Yet, the burgeoning private healthcare sector in Singapore has become a sore point for the industry. Healthcare bills, especially in the private sector, have increased rapidly in recent years. Between 2007 and 2017, average inpatient bills in the private sector rose 9% annually. In restructured hospitals, bills at private “A” class wards went up 5% a year over the same period. Overall, healthcare inflation and hospitalisation inflation rose 2.6% and 3.8% respectively, outpacing the broader inflation rate of 2.3% over the decade.

Rising private medical bills have put price pressure on the whole industry. Observers point to the use of more sophisticated technologies and rising doctors’ fees in the private sector as key factors. “This creates a large contrast with public-sector fees in comparison. This may cause a lot of problems in terms of equity of doctors’ pay,” says Phua Kai Hong, a healthcare economist at the Lee Kuan Yew School of Public Policy. “If you want to control high prices, you must look at where the excessive consumption is.”

The sharp rise in healthcare spending has led Health Minister Gan Kim Yong to declare at a recent Parliament sitting that “it is unsustainable for us to continue increasing our national healthcare expenditure at this current rate”. From 2010 to 2016, total national healthcare expenditure almost doubled from $11 billion to $21 billion, he says. Government spending for that period grew from $3.9 billion to $9.3 billion, while subsidies given out increased from $2.6 billion to $5.6 billion.

Taken together, the increase in private healthcare cost and public spending raises concerns over the country’s overall healthcare affordability. Still, no amount of public subsidies will ease the burden on patients if costs continue to spiral out of control.

To some observers, the cause of ballooning bills is a private healthcare system that has run a little too far in the name of market forces. “The real purpose of a healthcare system is to improve the health of the people and not to protect private interests,” Phua says. “Since there is little profit to be made without creating perverse interests, can growth take place without a price increase or a drop in quality?”

He adds, “Healthcare is not like other businesses; the private sector should come [in] to complement the system, not push up prices. [I would expect] that there will be more price control [on the private market].”

An industry of competing interests

A study of rising healthcare costs, particularly in the private sector, is complicated by competing interests and a dearth of information. Industry players tell The Edge Singapore there are issues of commercial sensitivities around these data points as the industry is rather small. For instance, data on revenue per patient and details of price increments in private hospital facilities are not available, although the Ministry of Health (MOH) publishes the average prices of hospital stays and various procedures in restructured and private hospitals.

What is clear is that no one can agree on who or what is responsible for the growing burden. Some insurers, and even doctors, say doctors and hospitals in the private sector may have felt free to charge as the market could bear it after the Singapore Medical Association removed its fee guidelines in 2007. The guidelines, which allow members of the public to see the recommended range of fees for consultations and common procedures, were removed after the competition watchdog deemed it “harmful to competition”.

On the other hand, the healthcare service providers point to the insurers’ generous packages that allowed for over-consumption. Doctors claim hospital charges and consumables have risen significantly more than doctors’ fees. But private hospitals beg to differ, pointing out that salaries account for the bulk of their expenditure.

Singapore Medical Group CEO Beng Teck Liang says personnel cost have risen consistently in the last decade. “An additional factor has been the rise of defensive medicine, which among the medical fraternity has become a cause for concern,” he says (see “Medical council remedies leave doctors with bad taste in mouth”).

In Singapore, the private healthcare sector is dominated by a handful of public listed companies, each controlling a network of clinics and specialists. And the companies are typically under pressure to generate ever-higher returns for shareholders.

For instance, Parkway Pantai is part of IHH Healthcare, the second-largest healthcare group globally by market capitalisation. Three of Parkway Pantai’s Singapore hospitals are placed under Parkway Life REIT, which is 35.7%-owned by IHH. Parkway Life REIT guarantees at least 1% growth in minimum rent. “The REIT structure — with fixed rental escalation — does add a bit of pressure on healthcare cost for IHH. The healthcare group will have to grow revenue by a certain amount to keep margins stable,” says a local property analyst.

In FY2018, Parkway Pantai Singapore’s revenue per inpatient admission increased 9.1% to RM31,983 ($10,602). Still, Phua Tien Beng, CEO of Parkway Pantai Singapore, says its Singapore hospitals have raised prices by only 3% to 4% a year. He adds that the group does not intend to increase prices this year in the light of the current concern over rising healthcare costs.

From his perspective, the biggest expenditure item for private medical providers is the cost of manpower. “[The shortage of nurses has] started to get more acute in the last six to seven years. This is partly in line with the expansion of the sector,” he explains. But this also puts additional pressure on the group. “[We don’t receive] any subsidy for nurses, [their] bonuses and training. In the restructured hospitals, the government has given out a 0.5 month bonus. We match that for our nurses.” Nurses’ salaries have grown by a double-digit percentage in the last two years, according to Phua.

Another big-ticket cost for the healthcare companies is the high price of land in Singapore, which hospital providers attribute as a major reason for the higher bills some patients are getting.

“The sale of land is left to market forces. We paid more than $1 billion for [Mount Elizabeth Novena],” says Phua. “We typically sell off our medical suites and subsequent transactions happen in the secondary market, depending on market conditions. But therein lies a problem: You [buy] the piece of land at market price. Then, when you are [offering] services, there is a concern over why you are [charging] so much more than restructured hospitals,” he says.

“The most expensive clinics are in Mount Elizabeth Orchard and Gleneagles Hospital. It is not uncommon for landlords to raise the rent by a few dollars per square foot once the lease is up. If the tenant wants to move out, they will have to pay a lump sum renovating another clinic and the tenant clinic may lose patients as their existing patients may not want to relocate to a new [location],” says Desmond Wai, who has a gastrointestinal disease centre practice at Mount Elizabeth Novena Specialist Centre.

Yet, data compiled by Cushman & Wakefield shows that while sale prices for medical suites rose between 2012 and 2015, they came down between 2016 and 2018. For instance, medical suites in Orchard were going for $7,233 psf in 2012 and $8,966 psf in 2015. But they moderated to $8,347 last year. Meanwhile, average rents for medical suites have been quite stable, at $13 psf in Orchard, $8.60 in Novena and $4.1 in Farrer Park. But an agent says a handful of medical suites in Novena fetched above $7,000 psf in the past year.

“There is no reason to blame real estate cost for the rising healthcare cost,” says Christine Li, senior director of research at Cushman & Wakefield. “Based on our data, medical suites’ asking rents have been stable. The outlook for medical suites should remain stable.” Li, however, adds that the supply of medical suites in the medium term is expected to be limited, which could drive prices up.

Public-private partnership

Singapore’s healthcare system has been lauded for its unique mix of public support and private interest, which seems to have worked for much of its recent history. The system involves mandated savings — taken from employees’ wages and contributions from employers — and a national insurance scheme augmented by private medical insurance. These two components are available for use in both public and private hospitals and even in a select handful of private medical facilities in Malaysia.

In addition, the government is involved in just about every aspect to control cost — from bulk-buying of drugs to making decisions to invest in new technology. On the whole, Singapore spends far less than most developed countries on healthcare as a percentage of GDP, and has managed to keep public healthcare costs relatively under control.

But sharply rising costs in the private sector has put pressure on the system as a whole. And, the private service providers will be playing an increasingly important role as crowded public hospitals and long wait times drive those like the Yongs to turn to them.

Eighty per cent of the primary health clinics are run by private operators and the government has already moved to co-opt them into providing services for the masses. Private general practitioners are joining the Community Health Assist Scheme programme. Raffles Medical Group, for one, has seen an increase of around 5% in new patients since joining the programme. The government subsidised about 630,000 patients last year and expects to pay out more than $200 million a year in CHAS subsidies.

“Having the private sector assume more of the responsibility is happening in many countries as the government tries to control healthcare spending in the public sector,” says Gerard Anderson, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.

“[Among other reasons,] we need the private sector to [offload] the public sector. For instance, if there is an infectious disease outbreak and one of the restructured hospitals is [on lockdown], the slack would need to be picked up by the other hospitals, including the private sector,” says Jeremy Lim, partner of the health and life sciences practice at global consultancy Oliver Wyman.

So, how do you bring down the costs of private healthcare? Does the industry need more regulation? To be sure, there is unlikely to be a panacea that solves the problem of growing costs. Given the increasing greying population and a higher rate of chronic illnesses, bigger medical bills are inevitable. And Singapore is not the only country grappling with this issue.

On their part, both Parkway Pantai Singapore and Raffles Medical Group say they are focusing on value-driven outcomes (see “How a value-based healthcare model can help manage costs”). For Parkway, it is turning to analytics to offer the best value for patients. It has fine-tuned its bill prediction software. It is also measuring outcomes for different medical procedures to help direct patients to the doctors with the best option at the cheapest price.

Oliver Wyman’s Lim thinks all parties have a part to play. “There is belated recognition that this is a complex problem that needs an ecosystem to respond. The government needs to regulate, insurers need to play their part to negotiate more actively and healthcare providers must innovate. At the same time, regulators need to innovate to reduce manpower cost,” he says. For starters, the Ministry of Health has set a surgical benchmark fee for private procedures. It also introduced a mandatory co-payment scheme in which patients have to pay at least 5% of the total hospital bill in cash.

The insurers are also taking action. The Life Insurance Association Singapore has developed two sets of best practice guidelines for integrated plan (IP) providers. The first set of guidelines help these insurers establish a pre-authorisation framework for patients to get pre-approval for medical treatment to be claimed. The other set of guidelines is to help insurers set up a panel of preferred healthcare providers.

Still, more can be done. “The insurers [in Singapore] do not seem to be able to negotiate for good rates with [private doctors or healthcare providers],” Lim observes. Insurers in Singapore tell The Edge Singapore they are moving towards this approach.

“It is reasonable to give time for the new initiatives to work. That said, we should robustly track and be ready to augment as needed to achieve the desired results. Often, it is not just the rules and regulations [that are needed] but enforcement in accordance with the letter and spirit of these regulations,” says Lim.

Other health economists, on the other hand, argue that the private sector should really just be an alternative service to a robust public healthcare sector. “Price controls come because of market forces driving up prices due to supply-induced demand and third-party reimbursement such as insurance, causing moral hazard and adverse selection,” one economist says. “I am for a balanced, mixed system, but with state control of public and private interest.”

Market control

One way to go about that is more stringent regulation of Singapore’s private healthcare sector to keep price hikes in check. Observers say there are many mechanisms that Singapore can consider adapting, such as a system with fixed negotiated rates for private providers or paying healthcare professionals according to a resource-based relative-value scale, based on the work done and pegged to reimbursement.

Taiwan, for example, has a single-payer system in which prices are set by the government but healthcare services are delivered by both the public and private sector. The government adjusts prices to fit its budget, which keep prices under control across providers. Despite private hospital mergers over the years, there has been no increase in price. Healthcare spending in Taiwan was 6.1% of GDP in 2017, still lower than the average in Organisation for Economic Co-operation and Development countries.

Meanwhile, Germany has a mix of public and private healthcare providers and insurance. The financing of services is negotiated and set by self-governing bodies — healthcare professional associations, insurers and hospitals — which have representatives in the Federal Joint Committee. The FJC has wide-ranging regulatory power to determine the services to be covered and sets quality measures for providers. Coverage decisions are also based on evidence from health technology assessments.

Tsung-Mei Cheng, a health policy research analyst at Princeton University, notes that Germany’s and Taiwan’s healthcare costs have been relatively stable. “I am not against having a private sector as long as the public sector can deliver and meet the needs of the people. When you have a private delivery system without supervision, you cannot control cost growth. The market will do what it wants to do,” she says.

Similarly, Jonathan Cylus, a health systems and policies research fellow at London School of Economics, says, “As soon as you have a situation where providers can charge whatever they want, or where there are variations in what public and private providers are paid, you are creating an unlevel playing field — so you are not going to incentivise competition in an optimal way.”

But detractors would argue that over-regulation in the private sector may lead to a lack of incentives for doctors and providers to provide good-quality care. Cylus argues that this has not been the case in the Netherlands and Germany despite tighter regulations. “In the Netherlands, national healthcare spending had been growing rapidly despite market competition among private providers. A few years ago, the government decided to set an overall budget that providers have to adhere to — and that led to cost containment. The lesson is that relying on markets alone to solve health system challenges does not generally work,” he adds.

When asked whether Singapore would emulate Taiwan and Germany in controlling healthcare costs, Lim thinks “we are not quite there yet in terms of options”. Health economist Phua believes the government will assume a bigger role in controlling healthcare costs. Stricter control over what really is a public good should be the first step. — With additional reporting by Amala Balakrishner

This story appears in The Edge Singapore (Issue 873, week of Mar 18) which is on sale now. Subscribe here