Leverage of funding models imperative for health sector

Hospitals have gained in recent years thanks to improved facilities and more strategic partnerships

Nipro Pharma Corporation – Japan’s biggest prescription drug contract manufacturer – has nearly completed procedures to increase investment capital by about $270 million to enlarge its facility at Saigon High-tech Park (SHTP) in Ho Chi Minh City so as to increase production volume.

“The procedure completion is expected in the next few weeks, thus increasing Nipro Pharma’s total investment there to $570 million,” a SHTP representative told VIR. “Nipro has performed well since it began investment in the park in 2016.”

Nipro Pharma is among the Japanese investors which have strong interest in Vietnam’s healthcare sector. Many more are expanding to and in Vietnam, according to the Japan External Trade Organization.

Together with Japan, South Korea and the EU also have more sights set on the lucrative local market.

Positive signals

The healthcare sector has welcomed new investment inflows in recent times, especially in 2020 when a number of new projects were announced despite pandemic restrictions. Late last year, a consortium led by Singaporean sovereign fund GIC acquired a minority stake in Vietnam-based private hospital operator Vinmec, part of Vingroup, for $203.1 million.

The year also witnessed VinaCapital using $26.7 million to acquire 30 per cent stake in Thu Cuc International General Hospital; and British Real Capital London’s launch of the $156 million Hong Anh Medical Campus project in Ho Chi Minh City.

In addition to foreign investment, new domestic private capital flows into the sector were also reported during the year. Last January the southern province of Tra Vinh licensed the high-tech pharma project from TV Pharma with initial investment of VND650 billion ($28.26 million). A few months later, the Van Phuc-Saigon Hospital and Hoan My General Hospital projects were also kicked off. Elsewhere, the Long An Obstetrics and Pediatrics Hospital, a public-private partnership (PPP) with Technical World Group being the investors, was put into operation.

The hospital segment is among the most attractive to international financiers and domestic ventures. Since 2015 when the government issued a policy on encouraging private investment in the health sector, over 200 private-run hospitals and more than 35,000 private-owned clinics were built nationwide.

Together with newly-built facilities, existing hospitals are advancing digitalisation projects to cash in on the unmet demands for high-quality services among Vietnamese who were spending an estimated $2 billion on overseas treatment every year before the pandemic.

In addition to infrastructure advances, the trend of focusing on social business programmes has been reinforced by recent moves among multinational corporations like Novartis, Roche, Sanofi, GSK, and AstraZeneca. The moves are in anticipation of a sharp rise in non-communicable diseases thanks to an ageing population.

For example, AstraZeneca Vietnam in collaboration with the Ministry of Health (MoH) and three specialised associations has launched a communications campaign to improve community awareness in asthma management.

Similarly, late last year the Vietnam Medical Association and Roche Vietnam signed a strategic partnership to implement a scheme on improving access to innovative therapies for high-risk breast cancer patients until 2025.

Also last year, GSK Pte., Ltd. in Vietnam signed an MoU with the MoH to fight against antimicrobial resistance in Vietnam, with the deal lasting until 2023.

Despite the growing interest, the quality of such initiatives has yet to satisfy the demand. According to the Vietnam 2035 Report by the World Bank and the Ministry of Planning and Investment, total spending on healthcare in the local market makes up about 5.8 per cent of the country’s GDP, among the highest rates in the region.

New motivations

Like other sectors in Vietnam, the healthcare sector faces a mismatch between the demand for investment and the fiscal space available to meet such demand. In 2016, it was estimated that the public healthcare network would need infrastructure investment of VND176 trillion ($8 billion) for the 2016–2020 period. Since 2010, the government has only allocated and met around two-thirds of capital demand for that period.

Therefore, the government sees private resources as critical to filling that gap, with government master plans for facility investment explicitly directing the MoH and hospitals to mobilise funding from the private sector.

Despite the sector’s importance, private investment in healthcare remains low due to shortcomings including a lack of a legal framework for PPP investment. However, the Law on Public-Private Partnership Investment, which took effect from January, will open the room for private investment in healthcare.

According to a VIR source, the government is gathering ideas from ministries and central agencies for the draft decree guiding the implementation of the law so that it is expected to be issued in the next few days, becoming the key piece of legislation governing PPP transactions in the country.

Under the law, health remains one of the priority sectors for PPP investment. Moreover, some legal concerns among investors are being solved. Specifically, Vietnam will, for the first time, apply revenue risk allocation for related initiatives.

Investors of such projects will be also ensured the right to access and use land and other public assets. Additionally, PPP businesses will enjoy incentives in tax, land use fee, land lease fee, and will be more in line with the prevailing rules on tax, land, and investment.

In addition to the Law on Public-Private Partnership Investment, the new Law on Investment and the new Law on Enterprises are expected to further facilitate capital flows into healthcare.

Moreover, it is projected that the EU-Vietnam Free Trade Agreement will bring more investment opportunities to EU-based pharma businesses in Vietnam and stiffening market competition. The landmark agreement will open the Vietnamese market in fields that businesses have been seeking particular solutions to for years, such as intellectual property rights, direct pharmaceuticals imports, and tenders, among others.

A representative of the MoH said, “Vietnam’s health sector is working on a number of tasks to achieve its goals. The sector always encourages private investment to join.”

Barriers remain

According to the World Bank’s “PPP for Health in Vietnam – Issues and Options” publication, the application of such partnerships in the health sector is still limited despite several facilitators such as the promotion of private investment into healthcare activities, deepening of hospital autonomy, the expansion of universal health insurance coverage, and the development of healthcare credits.

Thus far, a long wish list of 63 projects remains in the health PPP project pipeline. This high number is indicative of ineffective PPP project screening criteria rather than high potential, and only a small percentage of these projects are expected to reach implementation.

Most health PPP projects are proposed and developed at the sub-national level, especially in Ho Chi Minh City, and focus on hospital infrastructure and services rather than on preventive and primary healthcare. They are oriented towards higher-income groups in urban areas rather than disadvantaged groups in rural areas. The proposed health PPP pipeline, therefore, raises serious questions about equity and efficiency in public sector health service delivery.

Furthermore, PPPs have not been embedded in health policies and related regulations, hampering the use of PPPs to expand infrastructure and improve services in the sector. Stakeholders have far greater motivation and incentives to engage in healthcare projects using the joint venture models that were made possible through private investment attraction policy rather than the more complicated and prolonged PPP route.

In the current context, the World Bank experts said that health PPP models and contracts should be adopted with caution. The “asset-heavy, service-light” PPP models, such as equipment and facility PPPs, seem to be the most feasible options. Meanwhile small-scale “asset-light, service-heavy” models such as specialised services and integrated PPPs at the primary healthcare level may be suitable for selected projects for which the private sector has a competitive advantage.

Vietnam, however, does not yet seem to be ready for a fully integrated hospital PPP model because of various barriers in the existing regulatory framework as well as the capacity mismatch between the public and private sectors.

Experts recommend that the MoH should develop a circular guiding the screening, preparation, implementation, monitoring, and evaluation of health PPP projects.