How to drive growth in APAC health and medtech industries

The Asia Pacific (APAC) region is ageing more rapidly than any in history[1]. And Grant Thornton’s International Business Report (IBR) reveals that business leaders in the region view ageing as the most significant threat to their businesses over the next five years. It will reduce the supply of labour, increase wages, and potentially reduce competitiveness. But it isn’t all bad news. Health and medical technology (medtech) businesses are leading the way in identifying rich opportunities in this disruption.

Ageing population tips the balance in APAC

Globally, nearly two billion people are expected to be over 60 by 2050 – triple the figure in 2000. The OECD predicts that the world’s old-age support ratio (the number of people aged 20 to 64 per every person aged 65+) will reduce from 4.2 in 2008 to 2.1 by 2050. In the APAC region, things are even more marked. In China the old-age support ratio will plummet from 7.9 to 2.4 by 2050. This is a situation made worse by the country’s former “one-child policy”, meaning many Chinese families have a 4-2-1 structure (four grandparents, two parents, one child).

These changes are not, however, happening evenly across the region. North Asia is ageing more rapidly than the south. To the north, Japan has the oldest population in the world, with 26.3% of its citizens over 65, according to the World Health Organisation (WHO). The OECD predicts this will only get worse, with the country’s old age support ratio falling to 1.2 by 2050. In Australia, the proportion of over 65s is expected to peak in 2026, with the cost of care rising through that period and around one in four of the population over 75 by 2025.

Further south, India presents a different demographic challenge. Here, 65% of the population is under 35, and the country is keen to take advantage of this so-called “demographic dividend”. Some economists predict that India will be the third largest economy in the world by 2050. But even such relatively “young” economies are not exempt from the impact of ageing over the longer term. The OECD predicts India’s old age support ratio will also fall from 11.2 to 4.5 by 2050.

What are the risks for the healthcare sector?

Ageing in APAC is putting pressure on health budgets throughout the region. The tax base to fund healthcare services for the elderly could disappear within 15 years. In Singapore, for example, health inflation is running at 9.6%, and health currently counts at 12.6% of its entire spend.

Cost pressures and local country dynamics are forcing a lot of change in the APAC region’s aged care. The Australian economy, for example, is at a crossroads in its aged healthcare provision with less government funding dedicated to traditional care models already at capacity. The introduction of Consumer Directed Care has transformed home care. Darrell Price, Principal and National Head of Health & Aged Care at Grant Thornton Australia, explains: “Consumers have more choice of providers, services and pricing models and competition is mounting.”

Meanwhile, as competition has increased, scrutiny of the quality of care has resulted in a Royal Commission putting the sector under pressure and investigating care quality in residential facilities, retirement living and in-home care. With squeezed margins, a lot of the not-for-profit organisations are struggling.

Another challenge for the region is the supply of skilled workers to service expanding demand in the healthcare sector. Shoichiro Mitani, partner at Grant Thornton Japan, says: “In Japan, a shortage of skilled workers has become a serious problem across a range of industries, and is particularly acute in aged care and medical services. Ageing populations and declining birth rates in other countries will also make it extremely difficult for Japan to recruit exceptional international workers.”

Just as businesses across APAC face up to the potential challenges presented by this ageing population, it is clear there are significant opportunities for businesses in the region. Far from a gloomy scenario, as APAC ages faster than other global regions, so there is the potential for businesses to develop businesses and solutions that can later be exported globally.

Broad opportunities for healthcare investors

Despite the headwinds, the opportunities for lending to the health and aged care industry in the region are broad. Almost half the participants at a recent Grant Thornton Banker’s Boot Camp in Australia nominated the health and aged care sector as having the most robust prospects for future lending growth.

Darrell Price, Principal and National Head of Health & Aged Care at Grant Thornton Australia, comments: “There is increasing interest from the private equity sector in aged care. In the process of increasing competition and diversification of the market, private equity firms have realised there is money to be made in consolidations.”

A lot of smaller players, especially in rural areas, are throwing up their hands and private equity firms are looking to mop them up. Those transactions are beginning to roll through. We’ll start to see a lot of the small operators merge into larger groups to create scale.”

Some investment opportunities are born out of new trends and new business models. As Price explains, in the US, “university hospitals are creating hub and spoke facilities, building little day surgeries and overnight stay surgeries providing basic services, with the main hospitals servicing more complex procedures.”

“This trend is picking up in Australia, with private investors building day hospitals. Meanwhile, Japan is also looking at how they invest in these property developments with a view to bringing in specialists and tenants that can provide the service offering.”

China

Similar trends can be seen in China. As part of its National Planning Guideline for the Healthcare Service System (2015–2020), the Chinese government is seeking to provide a higher number of community-based senior care and assisted living services. This will both improve the provision for the ageing population and alleviate the burden on large-scale hospitals.

As one of the countries facing the most serious ageing crises, Japan has naturally seen changes to traditional residential care models. Conventional retirement accommodation for older adults used to be less like homes and more like medical facilities, says Mitani. “Elderly residences with services are now more commonly being promoted. Although care staff are there during the day, attendant services and day care services are provided by external providers and older adults can choose which services they sign-up for, depending on the care they need.”

This is not a cheap option, however, as rents are typically high. Providing affordable accommodation and care to elderly patients on lower incomes remains a challenge for dynamic businesses to grapple with.

The power of medtech to cut the cost of care

There are huge opportunities for businesses to harness technology in the delivery of health and aged-care services. Medtech is rapidly developing, with doctors providing consultations through distributor technologies in the home via mobile devices.

[1] “Live Long and Prosper: Aging in East Asia and Pacific”, World Bank 2016