Originally published January, 1996
Ames D. Gross
Rapid economic growth is changing health care throughout Asia, and creating new opportunities for medical device suppliers in the process. As Asian countries become more wealthy, average life expectancies have also increased (see Table I). The combination of a population that is simultaneously growing older and accumulating more wealth will offer numerous sales opportunities to those device companies that can capitalize on these trends.
The percentage of Asia's population defined as elderly is increasing rapidly (see Figure 1). This increase can be attributed in part to regional economic growth. At the same time, however, the aging of Asia's population threatens the continuation of that growth as societies are forced to commit more economic resources to an economically unproductive segment of their populations.
Governments in the Pacific Rim have responded to this challenge in different ways, with some emphasizing the public sector, others the private. Japan, which has been hit harder by the aging trend than any other country in the region, is trying a little of both. The Japanese have among the highest life expectancies in the world: the average male lives 75.9 years; the average female, 81.8. The country still maintains the highest ratio of workers-to-elderly of any industrialized nation, but it is shrinking fast. Because the country's exceptional life expectancy is still increasing, the Japanese Economic Newswire predicts that there will be only 2.4 workers for each senior citizen by the year 2025.
In 1994, medical costs in Japan were estimated at more than 24 trillion yen (approximately $274 billion). What's more, they are rising at a rate of 1 trillion yen per year (approximately $11.42 billion). The country is already struggling with the question of who will pay these rising costs. All Japanese citizens have access to health plans sponsored by employers and local governments, but the cost of a nursing home stay is not covered. Minister of Health Masako Ii believes that Japan should promulgate a national old-age program by 1997, but the country would have to increase taxes to fund it. Some ministers have suggested raising consumption taxes by 3 to 5% to pay the bill.
Manufacturers of medical products can profit by addressing the specific needs of senior citizens, which usually involve extra attention and assistance. Japanese families have traditionally assumed responsibility for supporting their elderly. Roughly 60% of Japan's elderly are now living alone, however, so many families are beginning to turn to traveling nurses for help.
Nursing homes are another alternative. In Tokyo, 10,000 people over age 70 are on waiting lists for such homes. Japanese entrepreneurs have begun to exploit this growing queue by constructing retirement communities abroad, particularly in Southeast Asia. As part of its so-called Silver Hair Program, Malaysia offers incentives to attract wealthy Japanese retirees. Singapore lures the same sorts of individuals with luxury cruises and other incentives.
Singapore is no stranger to the challenges posed by an aging citizenry: it has the fastest growing elderly population in the world. Over the next 15 years, the percentage of Singapore's people over age 65 will double from 10 to 20%. The country's ratio of workers-to-elderly will shrink from 11:1 today to 4:1 by 2025.
As in the rest of Southeast Asia, the leading causes of death in Singapore are changing. Fifty years ago, they were tropical diseases such as malaria. Today, these diseases are more easily treatable, and cancer and heart attacks occur more frequently. Such conditions are more expensive to treat because they require extensive procedures and therapies, and the rising health-care costs threaten to slow Singapore's 8% annual growth in the gross domestic product.
While Japan has looked first to the public sector to support its elderly population, Singapore's government has been reluctant to do so. Prime Minister Chok Tong Goh believes that Singapore does not have the resources to support a welfare system. According to him, it would be "a disaster if companies and young workers have to be taxed heavily to support the larger number of elderly in Singapore." All workers in Singapore must invest in the Central Provident Fund, a mandatory old-age savings pool. These funds, which were previously used to finance infrastructure projects, are being redirected to support senior citizens.
To ensure that Singapore's elderly do not place excessive demands on the government, two alternatives have been proposed. The first would decrease the elderly population's representation in parliament by giving working males in their 30s two votes each, which would prevent the elderly from forming a powerful special interest group, as they have in the United States. The second alternative is embodied in legislation sponsored by Walter Woon, a law professor at the National University of Singapore. Woon's bill would limit government support for the elderly by mandating that children support their elderly parents. Under this bill, aging parents would even be able to sue their children for negligent support.
Although the standard of living in the People's Republic of China lags far behind those of Singapore and Japan, the country faces a similar demographic time bomb. According to the Chinese Ministry of Health, by the year 2021 the percentage of the population over age 65 will exceed 13%. By the year 2030, there will be only 2.3 workers for every elderly individual. Ironically, the success of the Chinese government at encouraging couples to have no more than one child, along with improvements in national health care, are responsible for this changing demographic composition.
One strategy that governments throughout the region are pursuing to reduce the burden of caring for an aging population is privatization. This has been made possible by a growing middle class, which is willing to pay extra for higher-quality service and shorter lines at private hospitals in a region where health-care resources are sometimes scarce (see Table II) .
Singapore has taken the lead in privatization. The national government began this effort 40 years ago, when it allowed public-sector physicians to enter private practice. Singapore's 505-bed Mount Elizabeth Hospital, which is owned by the U.S.-based Tenet Healthcare Corp. (Santa Monica, CA), has been a leader in providing private care. Another growing private practice is the Raffles Medical Group Pte. Ltd., founded by Alfred Tiong in 1976. This practice grew from 5 to 18 clinics between 1990 and 1993.
Japan's government is also privatizing health-care institutions to reduce the 270 billion yen (approximately $3.08 billion) it spends each year to run them. In 1994, it discussed plans to privatize national hospitals by changing regulations to give Japanese companies and universities the right to purchase them.
In keeping with this plan, Japan's Ministry of Health and Welfare proposed reducing the number of national hospitals by either privatizing them or incorporating some of them into other national hospitals. The goal of the plan was to reduce the number of national hospitals from 239 in 1985 to 165 in 1997. So far, however, Japan's privatization experiment has had limited success: after a decade, only 10 of the 74 national hospitals that were to be eliminated have been sold off or incorporated into other hospitals.
Malaysia has also struggled to privatize its health-care system. According to its health minister, Datuk Mohd Farid Ariffin, Malaysia will privatize 11 state-run hospitals as a test case. The goal is to provide immediate service to those who can afford private hospitals, while still providing free medical care to the poor.
In Malaysia, health-care spending accounts for 6% of the gross national product, and increased at an average annual rate of 10.7% between 1989 and 1994. The public sector has been growing rapidly to achieve the goal of health care for all by the year 2000. The main thrust of this plan is to improve rural health care, in part through the use of mobile health-care units. The state subsidizes 95% of total medical costs, and everyone receives free care, even those who can afford to pay for it.
Malaysia has also attempted to reduce costs by privatizing some support services, including pharmacy services, food preparation, and medical waste disposal. The combined annual cost of these services is estimated at about Rm 500 million (approximately $195 million). In May 1994, the government awarded control of its medical stores, laboratories, and pharmaceutical production and distribution facilities in the northern region to United Engineers Malaysia Bhd. The company plans to produce pharmaceuticals for domestic consumption and, eventually, for export as well.
Asia is a dynamic economic region, and its rapidly growing health-care industry is undergoing nearly constant change. As medical technology allows people to live further and further beyond their economic primes, governments throughout the region must grapple with the issue of how best to care for them. Some governments are choosing to become more involved in providing health care. The majority, however, are turning to the private sector to reduce the burden on their health ministries.
While the aging of Asia's population presents problems for the region's governments, it offers a potential boon to U.S. medical device manufacturers. Above-average economic growth, higher life expectancies, and increased privatization in Asia should persist into the next century, and companies interested in selling to this market should formulate their product development and marketing efforts accordingly.
Ames D. Gross is president of Pacific Bridge, Inc. (Washington, DC).