March 21, 2017 12:00 pm JST

Indonesia's Siloam plans to double number of hospitals

National insurance providing a lift to country's largest hospital operator

JUN SUZUKI, Nikkei staff writer

Siloam International Hospitals aims to double the number of its hospitals to 50 by 2019. (Photo by Shinya Sawai)

JAKARTA -- Indonesia's Siloam International Hospitals aims to double the number of its hospitals to 50 by 2019.

The country's largest hospital operator expects to expand into remote areas, including the island of New Guinea, now that a universal health care system has been introduced, allowing low-income people to seek medical treatment.

Siloam President Romeo Lledo said the company will also look to expand via acquisitions.

Indonesia has only one hospital bed per 1,000 people, compared with the global average of two to three. So there is significant room for growth in the medical care market.

In particular, there are many small cities where medical services remain inadequate. These locations are key targets for Siloam, Lledo said.

The company initially will open hospitals in cities with populations of at least 500,000. It has recently decided to build one in the medium-size city of Sorong, West Papua Province.

Siloam's aggressive plan is supported by its parent conglomerate, Lippo Group, whose property business has secured real estate for hospitals in various parts of the country.

Siloam will repeat a strategy adopted by Lippo founder Mochtar Riady, who used a cookie-cutter approach in expanding his company's branch network.

This led to a large number of openings.

Siloam has developed three standard hospital formats. The smallest one has 40 beds, and the largest 300 beds.

Indonesia's medical care market is ballooning now that the country has a state-operated medical insurance system. In addition, more people are buying private-sector medical insurance policies.

The national insurance system, introduced in 2014, is called BPJS. Employers and the self-employed have to pay into it. Those who are covered can, in principle, receive free medical treatment.

There are also private policies that those who want coverage for advanced medical care can buy. According to a source at Sompo Japan Nipponkoa Insurance, there is strong demand for these policies from companies seeking to enhance employee benefits.

Siloam's revenue reached 5.17 trillion rupiah ($387 million) in 2016, up 24%, while Ebitda -- a profit proxy representing earnings before interest, taxes, depreciation and amortization -- rose 17% to 673 billion rupiah.

The rapid openings of hospitals, Siloam President Lledo said, is a way to achieve economies of scale through, say, bulk purchases of drugs.

The company has yet to achieve economies of scale, however, with its Ebitda margin against revenue remaining flat over the past few years.

Siloam operates under Lippo Karawaci, a real estate developer and core division of the Lippo Group. Opening Siloam hospitals on its land and in its buildings forms a key part of Lippo Karawaci's strategy -- the value of property near hospitals tends to go up.

Lippo Group started out in banking, but shifted to real estate development in the 1990s. One of the company's major projects was the development of the Karawachi district on the outskirts of Jakarta, where it turned a wild landscape into a high-end residential district.

Riady's wish to provide residents with medical services that are on par with standards established elsewhere in the world led to the 1996 establishment of a hospital in the exclusive district.

The hospital employs surgeons with advanced skills that used to be difficult to find in Indonesia. The hospital grew into what is now Siloam.

Riady, who notes in his memoir that hospitals benefit society and at the same time bring profits to their operators, has since made Siloam's services available to medium- and low-level income classes.

Lippo Group has started building hospitals elsewhere in Southeast Asia. Having opened one in Myanmar, the group is now mulling Vietnam and Laos. In February, the group revealed a plan to acquire a stake in a hospital operator in Singapore.

Nikkei staff writer Naoyuki Toyama contributed to this article.

Asia300

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Indonesia

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