Is private capital the way forward for inclusive healthcare in Asia?
The Asian healthcare sector is increasingly being driven by private investments. But the challenge is in funding private healthcare businesses at scale.
The healthcare sector has attracted significant investments from development financiers in the last two years due to the COVID-19 pandemic. Most of these investments, however, have been allocated to addressing the vaccine shortage in emerging and low-income countries. Riding on the momentum created by the pandemic, healthcare practitioners are now advocating for ‘inclusive healthcare’ strategies, which go beyond SDG 3 (good health and well-being) to incorporate poverty (SDG 1), healthy food access (SDG 2), and clean water and sanitation (SDG 6) into the healthcare funding agenda.
In Asia – which has the fastest growth in global healthcare spending and will represent over 40% of the predicted growth in global healthcare spending in the next decade – the healthcare sector is increasingly being driven by private investments. In private equity alone, healthcare in Asia saw deal volume soar to 156 transactions in 2020, representing $16.9 billion, up from 68 transactions or $11.5 billion in 2019. The healthcare market in Asia is expanding because of the continent’s vast population size, rising demand for treatment of various diseases, and increasing awareness of health and wellness.
While DFIs and MDBs have traditionally been investing in government-run healthcare services in Asia, private healthcare businesses are increasingly attracting DFI funding. “Governments alone cannot solve the problem of healthcare access in Asia,” says Lily Jin, author of the recently released report titled, ‘Inclusive Healthcare in Asia: A Path to Growth for Investments in Asia Post COVID-19’. “Private and innovate business models can be more efficient and faster.”
The scale of DFI investment in private healthcare companies remains relatively small compared to overall development aid for health, but it is a rapidly growing area. For instance, in May, the UK’s DFI, British International Investment (BII) – formerly known as the Commonwealth Development Corporation (CDC) – committed $450 million to invest in Bangladesh's private sector in the next four-five years, including healthcare. BII is also investing $45 million in the integrated healthcare delivery platform Evercare to increase access to quality healthcare services in Bangladesh.
“Currently, healthcare is being mainly funded by public sources, and healthcare focused single country funds are not that many in Asia. So that itself is a huge gap compared to healthcare in the US or Europe,” says Jin. While technology-driven healthcare start-ups are mostly funded by venture capital, and older private healthcare companies attract investments from mega funds like BlackRock, multilateral development banks tend to issue multi-sector funds or regional Asia funds in order to address healthcare problems. “These funds are backed by all sorts of commercial or development financiers because they are backing the growth of a nation or of multiple nations in Asia,” says Jin. But the challenge is in funding private healthcare businesses at scale, which could hold to key to better healthcare access in the continent.
Key factors of inclusive healthcare
According to Jin, a key factor that can contribute to the growth of healthcare in Asia is ‘inclusive healthcare’. Inclusive healthcare includes three fundamental elements – accessibility, health literacy and equity. Accessibility relates to the cost of a product or service and how affordable it is in relation to the average disposable income. It also factors in the method, process, or distances of care delivery to patients, ensuring that it is relatively tolerable and achievable. Health literacy is whether the primary decision-makers are informed or provided with transparent information needed to make healthcare decisions. Equity includes whether physicians, staff, and patients served have a diversity of racial, social, economic, and educational backgrounds.
“When it comes down to inclusiveness in a developed Asian country like China, where the government has a strong influence over the health care sector with policy and regulations, the state alone cannot solve the problem and needs new solutions, so healthcare tech has been a huge discussion or investment theme within China or India,” observes Jin. In India, inclusive healthcare – particularly in terms of affordability – is being driven by non-governmental organisations and foundations, which function on philanthropic grants. “That’s not a scalable model,” says Jin. “The current low level of inclusiveness in Asia’s healthcare sector can be easily improved and requires business participation, particularly since the demand for healthcare services is on the rise after COVID-19.”
Asset managers in healthcare
New models and reinventions require capital. According to ‘Inclusive Healthcare in Asia’ report, the private equity and venture capital investment – which logged $16.9 billion and $20 billion in 2020 respectively – previously issued multi-sector funds, but the trend now is to exclusively focus on healthcare in Asia.
For example, OrbiMed, among the biggest healthcare-dedicated investors, raised its fourth Asia-focused fund for $800 million in 2021. This fund was a continuation of previous investment strategies in healthcare growth-stage product and services-oriented companies that are primarily based in India, China, and some countries in Southeast Asia. In 2021, the Asian Development Bank (ADB) signed a $75 million equity investment in OrbiMed to enhance healthcare capacity, innovation, and resilience in India and China.
“Governments in Asian countries are also incentivising investments in private healthcare,” says Jin. For instance, the Chinese government has allowed up to 100% foreign ownership in private hospitals and removed the barriers of requiring at least 30% Chinese ownership. Private and foreign private investors in India are permitted to own up to 100% of hospitals as well as manufacture medical devices. The cap on foreign direct investments in the insurance sector has been increased from 26% to 49% provided that Indians retain ownership of the insurance company. Post-COVID, the market conditions for private healthcare in Asian countries are clearly conducive for growth, but the scalability of these investments are still dependent on the volatility of government policy and regulation.
