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Investments in Healthcare – Insurance Implications June 2010 Presented by Simranjit Singh Director Healthcare Healthcare Practice, APAC

4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

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Page 1: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

Investments in Healthcare – Insurance Implications

June 2010

Presented by Simranjit Singh

Director HealthcareHealthcare Practice, APAC

Page 2: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

2

Healthcare expenditure as % of GDP

4.63.23.8

8.4

4.1

3.7

6.16.6

4.9

8.9

5.7

8.5

0123456789

10

Japan

China

Austra

liaIn

dia

South K

orea

Taiwan

Thaila

nd

Mal

aysi

a

New Z

eala

nd

Singap

ore

Philippin

es

Hong Kong

Healthcare Spending- Macro perspectives

Countries with high investment in healthcare spending: South Korea, Taiwan, Australia, New Zealand & Japan

Page 3: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

3

Aging and Asia

• Asian countries are just beginning to

experience population aging. As it can

be seen on the graph on the left, the

aging process is occurring much more

quickly in East and South East Asia as

opposed to the West

• By 2025, East Asia will see approx 30%

of their population in the 65 age bracket

and above. Similarly SEA will see about

15% in the same age segment

• One reason that can be attributed to this

speed in aging is the rapid economic

growth that has happened in this

continent over the last 20 to 30 years

Page 4: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

4

APAC - Growing Older…………………

0 10 20 30 40 50

J apan

Australia

Hong Kong

Taiwan

South Korea

China

Singapore

Thailand

Indonesia

India

Malaysia

Philippines

2010

2003

% of population over 60

More than 25% of the population over 60!

More than 30% of the population over 60!

More than 40% of the population over 60!

‘Greying’ populations go hand-in-hand with increase medical expenditure associated with old age.

Page 5: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

5

APAC - Growing Wealthier…………………

0

1

2

3

4

5

6

7

8

9

10

Ch

ina

Ind

ia

Ind

on

es

ia

Ma

lay

sia

Ph

illip

ine

s

Th

aila

nd

Vie

tna

m

Sin

ga

po

re

Ho

ng

Ko

ng

So

uth

Ko

rea

Ta

iwa

n

Re

al

GD

P G

row

th (

%)

2005 2006

GDP Growth of Selected APAC Countries

Source: Frost & Sullivan DSD, 2007

Page 6: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

6

Healthcare Spending- Micro perspectives-1

CountryTotal

Population (Mn)**

Healthcare Expenditure

(bn USD)*

% *of Government Expenditure*

%* of Private Expenditure*

Healthcare Expenditure

as %* of GDP

Japan 127.3 337.2 80 20 8.5

Hong Kong 6.8 29.0 55 45 4.6

Australia 19.9 29.8 70 30 8.9

China 1298.8 29.1 20 80 5.7

India 1065.0 22.4 10 90 4.9

Malaysia 23.5 2.2 70 30 4.1

New Zealand 3.9 3.9 70 30 8.4

Singapore 4.4 2.9 40 60 3.8

Philippines 86.2 2.6 50 50 3.2

*: Frost & Sullivan Estimates from WHO figures for 2002

Countries with high proportion of government expenditureCountries with high proportion of private expenditure

** Latest Population figures as at July 2004-Source: CIA-the World Factbook

Page 7: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

7

Healthcare Spending- Micro perspectives-2

CountryTotal

Population (Mn)**

%* of Managed

Care Coverage

Population under

managed care

%* Private Managed

Care Insurance Coverage

Population under private

managed care

Japan 127.3 75.0 95.5 65.0 82.7

Hong Kong 6.8

China 1298.8 2.8 36.4 1.0 12.9

Australia 19.9 63.0 12.5 45.0 8.9

India 1065.0 0.2 2.1 0.15 1.6

Malaysia 23.5 2.0 0.5 0.5 0.1

New Zealand 3.9 63.0 2.5 30.0 1.2

Singapore 4.4 90.0 3.9 75.0 3.3

Philippines 86.2 10.0 8.6 2.0 1.7

High proportion of population under managed care High proportion of population under private managed care insurance coverage

** Latest Population figures as at July 2004-Source: CIA-the World Factbook*: Frost & Sullivan Estimates from WHO figures for 2002

Page 8: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

8

What is fuelling this growth?

The healthcare industry

Ageing population requiring greater medical

attention

Strong economic growth in the region

Development of combination products

Fall in device prices due higher competition

Increase in the healthcare facilities and physician skills

Developments in the interventional

techniquesLifestyle and diet

changes

Page 9: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

9

What are the challenges ?

The healthcare industry

Low purchasing power of consumers

Undeveloped distribution channels

High cost of devices and procedures

Lack of skilled physicians

Delay in market entry of new products due to regulatory approvals

Low reimbursements and insurance coverage

Shortage of advanced diagnostics and treatment facilities

Page 10: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

10

Regulatory Environment

CountriesHealthcare Insurance -

Funding

Pharmaceutical Regulation

Medical Devices

RegulationHealthcare IT

Provider Space - Delivery &

Quality

Australia High High High High High

New Zealand High High High High High

Japan High High High Moderate Moderate

Singapore High High High High High

South Korea High Moderate Moderate High Moderate

Hong Kong High Moderate Moderate High High

Taiwan High Moderate High High Moderate

Malaysia Moderate High Moderate High High

Philippines Moderate Moderate Moderate Low Moderate

China Low High Moderate Low Low

Thailand Moderate Moderate Moderate Moderate High

India Low Moderate Moderate Low Low

Degree of Regulatory Progress & Development

Regulatory Parameters

Mature markets of the Region

Emerging Markets of the region

Markets with good potential but lacking adequate payor infrastructure particularly India and China

Page 11: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

11

Payor Scenario & Opportunities in Healthcare Insurance

95.5

36.4

8.6

82.7

12.9 8.9 1.73.92.50.512.5 2.13.31.20.11.60

20

40

60

80

100

120

Japan

China

Austra

lia

India

South K

orea

Taiwan

Thaila

nd

Mal

aysi

a

New Z

eala

nd

Singap

ore

Philippin

es

Population under Managed Care Coverage

Population under Private Managed Care

Mil

lio

n P

op

ula

tio

n

Countries with a relatively higher population under managed care

Japan: Mature market

Philippines: Emerging market

China: Good potential but lacking payor facilities

Australia: Mature Market

Page 12: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

12

Healthcare Overviews and Role of TPAs

Page 13: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

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written approval of Frost & Sullivan.

13

Healthcare Drivers

Medical Tourism

Changing Disease Pattern

Extended Health

Insurance Coverage

Better affordability enhances the accessibility of healthcare, thus boosting the demand.

Increased Life Expectancy

Boost demand for nursing care & medical treatment of chronic diseases

Demand on Medical Care

Boost in-patient & out-patient visits in private hospitals

Increase of Chronic Disease Prevalence spurning the demand of Preventive Therapeutic Services

Public Sector Private Sector Overall Healthcare Market

Impact

Assessment of Impact to Healthcare Industry

Malaysia - Impact of Market Dynamics and Trends

Page 14: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

14

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Heavy Involvement of MCOs in TPA functions

• Managed care organizations (MCO) have gained momentum since gaining legal legitimacy in 1994, and are currently covering an estimated 1.5 million enrollees, provided through personal or group insurance coverage.

• Over 22 insurers have engaged MCOs to administer their Medical and Health Insurance claims.

• As of 2008, there are 56 MCOs operating in Malaysia. However, only 6 have been registered under the new MOH requirement enforced through the Private Healthcare Facilities and Services Act (1998), Act 586, which is due by March 31 2008.

• Key MCO players in Malaysia include MediExpress, Medilink Global, MHC Asia Group, and IHM Group, which are mainly involved in third party administrative roles, such as claim administration, provider network management, and information and data management.

50

46

62008

1990

Unregistered MCOs Registered MCOs

Issues Ahead

• Despite the proposition of cash-less hospitalization benefits by the TPAs, some of the issues that need to be resolved are:

• Lack of regulatory framework for MCOs’ operations to protect consumers’ interests

• Fee splitting controversy due to discount requests from the MCOs

• Delay in reimbursement payout from MCOs to hospitals or practitioners

• Selective empanelled hospital listing limits the access of policy holders seeking treatments

Source : Medilink-Global UK Limited: Placing & Admission to AIM Report, TheStar, PIKOM, Frost & Sullivan Analysis

Malaysia - Role of Third Party Insurance Administrators

Healthcare Landscape: Presence of MCOs (Malaysia), (1990 & 2008)

Page 15: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

15

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Healthcare Drivers

Medical Tourism

Private Health

Insurance

Changing Disease Pattern

Increasing headcounts and capacities of specialty medical centers

Aging Population

Increase demand for Long term and subsidies care facilities

Demand on Medical Care

Attainment of Medical Hub status boosts both the public and private hospital segments

Broadened Insurance Coverage Increases Patients’ Eligibilities to the more costly Private Hospitals

More informed patients has consistently drive medical institutions for higher quality standards

Public Sector Private Sector Overall Healthcare Market

Greater Healthcare Awareness

Impact

Assessment of Impact to Healthcare Industry

Singapore - Impact of Market Dynamics & Trends

Page 16: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

16

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Overview of Singapore’s MCO Market• In 1994, Singapore’s National Trades Union Congress (NTUC)

launched a pilot-scale managed care plan, the Managed Healthcare System (MHS), a non-profit organization that serves a social goal of providing quality healthcare at affordable rates to citizen- known widely as NTUC MHS.

• Drug costs are decided by either a fixed drug list or an exclusion list, e.g. vitamins. The prices paid by the MCO for the drugs used depend on the agreement with the healthcare provider. These arrangements vary from pegging it to DIMS pricing, or prices that the providers claim for, or prices that the MCOs dictate.

• There are a few MCOs in Singapore, namely Balestier Medical Group, AIA-HMO Medical Group, Managed Health Care Group (MHC), and the list goes on.

• Major insurers (e.g. QBE, NG Insurance, Aviva, AXA Insurance, Great Eastern and NTUC) contract with HMOs such as MIB (formerly MHC), Healthway and Medinet to provide outpatient service.

% of respondents

Healthcare Landscape: Payment Period After Invoicing (Singapore), 2006

Source : SMA Managed Care Survey 2006; Understanding Managed Care by the Department of COFM, NUS

SG$18

SG$25

SG$35

0

10

20

30

40

Usual C&M When moremedicines are

needed

Chronic conditions

Averag

e F

ee C

ap

s (

SG

$) Healthcare Landscape: Fee Caps System (Singapore), 2007

Singapore - Role of Third Party Insurance Administrators

Page 17: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

17

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Issues Ahead

• With the complex schemes, there may be some difficulties with excessive claims for medications that skews the pooled premiums, thus resulting in low consultation rates

• Some patients are dissatisfied with exclusions (non-coverage of certain illnesses) whilst some providers unhappy with patients who visit frequently, or who want additional medications

• MCOs unhappy with some providers on the routine use of more expensive medicines

• Low consultation rates set by managed care players in order to build market share. In the long run, these low rates might lead to under-servicing and a host of other problems

• Scarcity of transparency on how the managed healthcare players conduct their business

• The Singapore Medical Association Private Practice Committee (2003) indicated that physicians were generally unhappy with managed care plans, reasons being late payments, or capitation that may be too low to cover the cost of treating patients with multiple problems

Potential of managed care schemes to be a channel to higher-yield procedures

Potential of managed care schemes to be a channel to higher-yield procedures

The GP (General Practitioner) groups were trying to increase market share and hold on

to big corporate customers

The GP (General Practitioner) groups were trying to increase market share and hold on

to big corporate customers

Apart from highly profitable inpatient schemes, insurance companies want to

provide better service by offering outpatient schemes

Apart from highly profitable inpatient schemes, insurance companies want to

provide better service by offering outpatient schemes

Commercial outfits that were not involved in healthcare came into the picture to try to capitalize on the situation, thinking that

there was money to be made off ownership of patient pools and cash flow

Commercial outfits that were not involved in healthcare came into the picture to try to capitalize on the situation, thinking that

there was money to be made off ownership of patient pools and cash flow

Key Driving Factors on Proliferation of Managed Care Schemes in Singapore

Future Trend

• Managed care and insurance market will grow

• Managed care is currently regulated by Monetary Authority of Singapore (MAS), but Ministry of Health (MOH) may enter the picture

• Life insurance companies have advantage of size and being able to cross-subsidize products

• Doctors will be divided and conquered

Singapore - Role of Third Party Insurance Administrators (Cont. )

Page 18: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

18

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written approval of Frost & Sullivan.

Assessment of Impact to Healthcare Industry

Healthcare Drivers

Development of National Health

Policies and Strategies

High Prevalence of Communicable

Diseases

Growing number of

lifestyle-related and chronic

diseases

Healthcare providers shifting their focus towards curative medicine

Increased Life Expectancy

Creates demand for services and infrastructure catered for geriatric care

Demand on Medical Care

Consistent review of the existing healthcare, thus improving the quality of the existing healthcare industry

Urgent need for effective communicable and infectious disease management

Public Sector Private Sector Overall Healthcare Market

Impact

Indonesia - Impact of Market Dynamics and Trends

Page 19: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

19

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Industry Outlook

Third Party Administrators (TPAs) and Health Maintenance Organizations (HMOs) in Indonesia are divided into 2; government linked companies managing overall national social health insurance plan for the lower income citizens, and the private entities consisting of independent insurance claim assistance companies, insurance brokerage companies, and to some extent in last 2 years, subsidiaries to several healthcare groups like Siloam Hospitals and Global Doctors.

The latter provides claims management and assistance services to insurance companies, and managing employee benefits and life insurance related services for private companies.

There are currently 24 registered ‘Bapels’ (or commercial HMOs) in Indonesia covering less than 500,000 of the country’s population. Bapels provide comprehensive health benefits through a network of health care providers (government run and private) and to make payment to providers on capitation.

Source : WHO – Searo Social Health Insurance in Indonesia (2008)

TPA / HMO Clients

PT Global Assistance Management Indonesia (TPA)

AIG Life (I)

AIA Life (I)

William Russell (I)

Rama Group Health (I)

Asuransi Syariah Mubarakah (I)

PT International SOS (TPA) AXA Life (I)

PT Askes Komersil (Commercial Askes) (HMO)

PT Gudang Garam (P)

PT Dexa Medica (P)

Universitas Trisakti (P)

PT Asuransi Jiwa Bringin Sejahtera (HMO)

PT HM Sampoerna (P)

Key TPAs, Commercial HMOs and Their Clients

Note: I : insurance company, P : Private company

Indonesia - Role of Third Party Insurance Administrators

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20

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Source : World Bank Indonesia Health Expenditure Report (2008)

6.0

8.6

3.5

5.7

8.5

3.9

8.3

5.03.5

15.0

5.43.4

28.5

6.1

4.0

-5.0

5.0

15.0

25.0

35.0

45.0

Per

cen

t (%

)

2003 2004 2005 2006 2007

Year

Bapels and OthersPrivate Life InsuranceCommercial Askes HMONational Health Insurance via Jamsostek HMONational Health Insurance via PT Askes

Indonesia - Role of Third Party Insurance Administrators (Cont. )

Healthcare Landscape: Percentage of Indonesians by Type of

Health Insurance Providers (Indonesia), 2003-2007

TPA and HMO business penetration rate and future outlook

The penetration rate of private health insurance is very low in Indonesia compared to its neighboring countries. It was recorded to be at 3% from 2006 to 4 % in 2007

Taking the number of people insured through the national health insurance program for the poor (28.5%), those who have been insured by their employers into account (8.6%) as well as those who are covered by private healthcare insurances (4%), there is still an opportunity for further penetration to the remaining 58.1% of the population

Third party administrators businesses growth is parallel with the increase in private insurance coverage in the country.

Commercial HMOs and MCOs (managed care organization) which targets corporate entities for the management of employees’ life insurance and other benefits had better luck finding clients

It is reported that 82% of the employers with more than 20 employees in Indonesia today provides various kinds of health benefits, through the engagement of Jamsostek or private HMOs. This present an opportunity for the existing HMOs to reach out for the remaining 18% of the companies

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21

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written approval of Frost & Sullivan.

Healthcare Drivers

Health Insurance & Coverage

Aging Population

Varying Disease Pattern

Rising demand for medical treatment of chronic diseases such as Cancer, liver, pancreas, kidney, pneumonia, cerebrovascular, diabetes, hypertensive, blood, eye,

respiratory diseases, & disease of female reproductive organ

Medical Tourism

Rising in-patient & out-patient visits in private hospitals

Demand on Medical Care

“30 Baht” boosts the accessibility of Healthcare Services

Improvement on Healthcare system from the preventive perspective, and enhancement of chronic and nursing care

facilities

Public Sector Private Sector Overall Healthcare Market

Impact

Growing Privatized Healthcare

Private sector – the dominating force in the future hospital service market

Assessment of Impact to Healthcare Industry

Thailand - Impact of Market Dynamics and Trends

Page 22: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

22

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written approval of Frost & Sullivan.

Steady rise of Thai TPA market

• Thailand introduced the concept of managed care in 1996, which subsequently opened the gateway for the growth of Managed Care Organizations (MCOs), and Third Party Administrators (TPAs) in the country.

• As of 2008, there are 52 insurance brokerage companies registered under the Thai Insurance Brokers Association, which mostly carry out third party administrative functions for a broad range of insurance products, including, life, general, and health insurance.

• Majority of associated insurance brokers specializes in TPA and insurance consulting functions, such as claim management, benefit management by designing appropriate health plans for the corporate or insurance companies.

• In 2008, a joint venture with Medilink enabled Health Benefits Consultants (HBC) to become the first TPA with electronic eligibility verification healthcard network in Thailand.

Source : Thai Insurance Brokers Association Member Listing, Thai PR.net, TPA Players’ websites, Frost & Sullivan Analysis

Key TPA Players in Thailand

Future Outlook

• The strong growth of medical tourism is likely to boost the TPA industry of Thailand, as foreign patients from US and Europe are more susceptible to TPA form of medical payments.

• The introduction of the E-Healthcard creates the path for more efficient third party administrative activities and offers greater convenience to both the patient and the healthcare providers. Hence, more existing or new TPA market players are likely to follow suit on this service.

Company Country of Origin

Key Expertise

Health Benefits Consultant

ThailandBenefits management, claims

administration, Information & data management

MSI Adjusting (Thailand)

JapanClaim management on policies issued Sri Muang Insurance and Tokio-Marine Group

Independent Consultant (ICC)

ThailandClaim Management, Settlement negotiation with insurers and health service providers

EkawitThailand

Benefit Management, personalized insurance solutions, claim administration

Medilink Thailand

United Kingdom

Medical insurance and claim administration, eligibility verification, Electronic Healthcard

Network Services (EHNS)

Thailand - Role of Third Party Insurance Administrators

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23

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written approval of Frost & Sullivan.

Assessment of Impact to Healthcare Industry

Healthcare Drivers

National Health Performance Framework

Growing Popularity of Private Health

Insurance

Chronic Disease Burden

Strong demand persists for chronic disease care facilities and systems

Increased Life Expectancy

Creates demand for services and infrastructure catered for geriatric care; Furbishes new business opportunity for private

player penetration

Demand on Medical Care

Consistent review of the existing healthcare, thus improving the quality of the existing healthcare industry

Greater accessibility and affordability to private healthcare

Public Sector Private Sector Overall Healthcare Market

Impact

Australia - Impact of Market Dynamics and Trends

Page 24: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

24

© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Outlook of the TPA market in Australia

• The market trend of increased management expenses and the recommendations from the PHIAC (Private Health Insurance Administration Council) will boost the demand for TPA or health insurance BPO service.

• Furthermore, the introduction of the Prudential Act on Outsourcing for the Insurance sector further outlines the regulatory and operational requirements closely monitored under the Australian Prudential Regulation Authority (APRA) to ensure the quality standards of TPAs.

• The Australian banking, financial services, and insurance industry is estimated to US$1.72 billion by 2010.

• Unlike the USA, TPA or insurance process outsourcing still has a relatively low market penetration rate to date, and may result in a two-folded outcome on its future development.

Key Opportunities:

• Profit constraint to Private insurers due to escalating management expenses.

• Consistent development of regulatory framework for insurance BPO.

• Relatively untapped Australian market, especially players specializing in medical insurance.

Key TPA Players in Australia

Company Country of Origin

Key Expertise

EDS Australia

USA

Healthcare payer administrative services – including claim

processing and management, error suspense resolution, and enrollment

membership and billing management, ITO (Information

Technology Outsourcing)

Fujitsu Australia

Japan

Web-based straight through processing (STP) for life insurance market, covering comprehensive

operational process of the life insurers

Health Source Australi

a

Claim Processing, Management Reporting, Front line sales &

services, technological solutions, human resource training

Sai BPO Services India

Claim Processing, administration of policies, new business

administration

Life Administration Services

Australia

New business administration and Policy administration for life insurers

Source : www.frost.com, TPA’s players’ company websites, Frost & Sullivan Analysis

Australia - Role of A Third Party Insurance Administrators

Page 25: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

25

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written approval of Frost & Sullivan.

0

200

400

600

800

1000

2003-04 2004-05 2005-06 2006-07 2007-08

Man

agem

ent E

xpen

ses

(US

$M)

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

Rat

io to

Pre

miu

m R

even

ue

(%)

Management Expenses % to Benefits Paid

Source : Private Health Insurance Administration Council, Australia: Operations of the Private Health Insurers 2008 Annual Report, Frost & Sullivan Analysis

Cost Impact of the Private Health Insurance Regulatory Reform

• Introduction of the Private Health Insurance Act 2007:

• Purpose to enhance the market’s confidence on private health insurance, through more stringent governance of the private insurers’ operations.

• Contains administrative provisions to increase the range of enforcement mechanisms for monitoring purpose.

• Subsequently, the management expenses and ratio to premium revenue of the private health insurers have increased mainly due to the escalated costs of registration and product approval process required by the legislation, leading to thinner margins.

• Employee costs, in particular, forms the largest cost component at 44.6%, followed by information technology & marketing expenses.

• Despite the increase in management expenses, the cost control capabilities of the private health insurers are considered favorable.

• Nonetheless, with the consistent increase in membership volume and the competition to become more cost competitive, the PHIAC has provided several recommendations in 2008 to mitigate the increasing expenses stemmed from the new legislation.

• Key recommendations includes the encouragement on the utilization of HCIT for administrative processing, and outsourcing of member management systems and back office services.

Australia - Role of A Third Party Insurance Administrators (Cont. )

Healthcare Landscape: Australia Private Insurance Management Expenses Trend & Ratio to Premium Revenue

(Australia), 2003-2007

Healthcare Landscape: Breakdown of Management Expenses (Australia), 2007-2008, (in AUD$)

Page 26: 4th Health Insurance Conference - Investments in Healthcare - Insurance Implications

26

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written approval of Frost & Sullivan.

Healthcare Drivers

Medical Tourism

Private Health Insurance

Penetration

Heavy Disease Burden

Increase demand for preventive and curative care, while supported by the development of public health research

Changing Demographic

Profile

Stems demand on primary and geriatric care infrastructure and resources

Demand on Medical Care

Greater affordability and accessibility to quality private healthcare

Enhancement of healthcare facilities & Infrastructure; boost demand in private healthcare

Public Sector Private Sector Overall Healthcare Market

Impact

Privatization of Indian

Healthcare

Enhancement of Infrastructure Capacity and streamlining of Healthcare Delivery Standards

Assessment of Impact to Healthcare Industry

India - Impact of Market Dynamics & Trends

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Overview of India’s TPA Market

• 28 TPAs were registered as of June 2008, up from 23 since its introduction in March 2002 through the IRDA (Third Party Administrators – Health Services) Regulations, 2001.

• A minimum capital requirement of US$ 0.20 million and a capping of 26% foreign equity are mandatory requirements for a TPA as spelt by the IRDA. License is usually granted for a minimum period of three years.

• TPAs function as intermediaries between the insurer and insured and facilitate the cashless service of insurance. TPAs currently charges a fixed 5.6% of the insurance premium to the insurer as a form of commission for the service rendered.

• Key Insurers like Iffco-Tokio Marine General Insurance, ICICI, Lombard General Insurance, Reliance General Insurance and Royal Sundaram General Insurance have already signed up their respective TPAs.

Others14%

TTK13%

Medi Assist9% E Meditek Solutions

8%

Paramount 19%

Family Health Plan22%

Genins6%

Medicare4%

Raksha5%

Family Health PlanParamount TTKMedi AssistE Meditek SolutionsGeninsRakshaMedicareOthers

Source : Insurance Regulatory & Development Authority India Annual Report 2003 - 2007, Frost & Sullivan Analysis

India - Role of Third Party Insurance Administrators

Healthcare Landscape: TPA Player Market Share by No. of Claims (India), (2006-2007)

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Rapid Growth Trend

• Since 2003, the TPA market has marked its significance with the rapid growth in terms of patient claims management, posting CAGR of 57.07% between 2003 to 2007.

• Furthermore, key TPA players (such as Family Health Plan, Paramount, TTK, Medi Assist, and E-Meditek Solutions) are consistently expanding their hospital panel list, each holding affiliated hospital networks of between 3,000 to 6,000 in 2007.

• The steady improvement of the settlement duration also marks significant improvement in the TPAs’ operational efficiencies, whereby 76.44% of the claims were settled within 30 days in 2006-07, up from 53.65% in 2003-04.

Issues Ahead

• Despite the proposition of cash-less hospitalization benefits by the TPAs, some of the issues have arise following its operations that needs to be resolved:

• Weak Hospital Networking and poor standardization of billing procedures for hospitals

• Delay in issuing of identity cards to policy holders

• Delay in reimbursement payout from TPA to hospitals

• Low awareness among policyholders about the existence of TPA and empanelled hospitals for cashless hospitalization services

• Selective empanelled hospital listing limits the access of policy holders seeking treatments.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2003-04 2004-05 2005-06 2006-07N

o. o

f Cla

ims

('000

)40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

Set

tlem

ent w

ithin

30

day

s (%

)

Claims Settlement within 30 days

CAGR % (2003-2007)

Revenue : 57.07%

Source : Insurance Regulatory & Development Authority India Annual Report 2003 - 2007, Frost & Sullivan Analysis

India - Role of Third Party Insurance Administrators (Cont. )

Healthcare Landscape: TPA Claims and Settlement Trend, (India), 2003-2007

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Assessment of Impact to Healthcare Industry

Healthcare Drivers

Expanding Insurance Coverage

Chronic Disease Burden

Rising Middle & Affluent Class

Population

Improvement of healthcare services quality; Boosts demand for private healthcare and

insurance

Aging Population

Boosts demand for geriatric care and specialized healthcare for the rising elderly population

Demand on Medical Care

Increasing access of both private and public healthcare; Reduction of Out-of-pocket payments

Drives market demand for curative and preventive products and services

Public Sector Private Sector Overall Healthcare Market

Impact

China - Impact of Market Dynamics and Trends

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Overview of China’s TPA Market

• In China, a number of managed care systems were launched in different parts of the country in the 1980s

• It is estimated that China spent more than US$ 143 billion on healthcare in 2007, 52% of which was directly paid by households. Commercial medical insurance covered less than 6% of these costs, implying a market potential of US$ 67 billion

• The Regulatory environment for the insurance market in China has been somewhat relaxed and there is an increasing demand by the “middle-class” for private healthcare

• The current level of TPA market competition in China is relatively low. Most foreign investors choose to run a TPA company first or buy shares in local businesses to gain presence in the sector

• As a result of relationship with the hospitals, clients receive “cashless service” at the hospitals upon presentation of their health insurance card which is attractive and convenient to the patient

Source : Chinese Health Statistics Summary 2005; Digimedex; Medilink Report; Frost & Sullivan Analysis

Examples of TPAs in China

Examples of Insurers in China

• Prestige Health (Swiss Re)• Digimedex• Sunnylife• CIGNA Corp.• UnitedHealth Group• Aetna Inc.• MediLink (MidLink)• Tiecare and GBG• WellPoint Inc

• Generali China Life Assurance Company

• Ping An Annuity Insurance Company of China Ltd.

• PICC Health Insurance Co Ltd

• Sunshine Insurance Group• Generali China Life

Insurance Co. Ltd.

Examples of Key Players in China’s TPA Market

China - Role of Third Party Insurance Administrators

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Source : Chinese Health Statistics Summary 2005; Digimedex; Medilink Report; Asia Times; Frost & Sullivan

Challenges in the Chinese Market

• TPA is in its infancy in China with very few operators currently in existence

• To do business in China, a TPA company must first open a representative office and partner with a Chinese company. Finding the right partner is crucial for success

• There is reluctance among international firms to outsource TPA services to local companies

Opportunities & Future Trend

• The TPA industry in China is still in its infancy, however, it is perceived to have rapid growth in the near future

• China is an attractive market for many international operators due to its membership potential resulting from:

Rapid growth in income levels and purchasing power

Increasing awareness of healthcare benefit schemes

Higher expectation of better healthcare quality

• Key strategies to succeed in China’s TPA market:

Presence of infrastructure, proven technology and track record of operations in other countries

Offers fully automated system

For new entrants- market entry through strategic partnerships

Joint-market with Chinese banks is an important factor in achieving market penetration and growth

• According to the U.S. Department of Commerce, the Chinese government is interested in developing its health care and pension insurance sector in order to sustain announced reforms and provide for the nation's aging population.

• The potential value of China's health insurance premium market could reach more than US$17 billion by 2015, triple what it is today, in part due to the aging of China's population and an expanding economy

• China's health care spending is expected to account for 6% to 7% of its GDP, and this could further grow the market for insurance products

17

5.6

3.2

2015

2008

2004

Healthcare Landscape: Health Insurance Premium Market by Expenditure US$ Bn, (China)

(2004, 2008 & 2015)

China - Role of Third Party Insurance Administrators (Cont. )

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Opportunities in APAC

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

What drives the Asia Pacific Markets?

Countries

Integration of Healthcare Networks, Public and

Private

Changing Demographics-Rapidly Ageing

Population

Medical Tourism

Regulatory developments

in Healthcare IT

Growth of Payor Markets

Australia High Medium Low High Low

New Zealand High Medium Low High Medium

Japan Medium High Low Medium Low

Singapore Medium High High High Low

South Korea Medium Medium Low High Medium

Hong Kong Low High Low High Low

Taiwan Medium Medium Low Medium Medium

Malaysia Medium Medium High High High

Philippines Medium Medium High High High

China Low Low Low High High

Thailand Low Medium High High High

India Low Low High High High

Drivers

Degree of Impact (2004 -2008)

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

Providers in Asia Pacific: Hospital bed count - A driving factor for investment?

8.5

21.1

2.9

0.8 0.7

16.5

6.2

3.6

02468

1012141618

Hospital beds /1000 people

Dramatic transformationIn bed landscape

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

The paradigm shift of healthcare from provider to patient centric, centralized to decentralized, have pushed the standards of healthcare in terms of quality and efficiency to a higher level. Hence, value added components, such Health Information Technology, Health BPO (Business Processing Outsourcing) and private health insurance are likely to play significant roles in the transition process.

Key Focused Market Segments & Geographies

High

Market Penetration

Rate

Low

Growth PotentialLow High

HCIT

Australia, China,

Taiwan, India

HCIT

Indonesia

TPA

India, Australia, Malaysia

TPA

Taiwan, Thailand

PHI

Taiwan, Thailand

TPA

Singapore, Indonesia,

China

PHI

Singapore, Malaysia,

India

HCIT

Thailand, Malaysia, Singapore

Least Worthy

Challenging

Competitive

High Priority

PHI

Australia, China

Centralized/Traditional Healthcare Management

Non-applicable to Countries – Traditional Healthcare

management lacks patient care effectiveness, operational

efficiency and market attractiveness

PHI = Private Health Insurance, TPA = Third Party Administration, HCIT = Healthcare Information Technology

Opportunity Assessment on Emerging Market Segments

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© 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the

written approval of Frost & Sullivan.

36

Thank You

Mr Simranjit SinghDirector, Healthcare Asia Pacific

Frost & Sullivan DID: 65-6890 0954

Mobile : 65 91473750Fax: 65-6890 0222

Email: [email protected]