ANALYSIS OF THE MARKET STRUCTURE OF HOSPITAL INDUSTRY IN INDONESIA
Background: Over the past decade, private investments in health care including hospital have grown significantly, more than doubling. As the number of hospitals in Indonesia increases, a competitive business environment develops. Identifying hospital market structure can help various stakeholders to optimize the hospital's performance.
Aims: This study analyzed the market structure and concentration of the hospital industry in Indonesia.
Methods: This study used hospital characteristics data from Ministry of Health of Indonesia that retrieved in October 2020. Market concentration is determined by the number of industry players operating in a market, the distribution of services, and the types of services offered. The hospital market concentration was identified by measuring the Concentration Ratio (CR) and the Herfindahl–Hirschman index (HHI).
Results: The results showed that the market share of hospitals in Indonesia was still dominated by government hospitals, which represent 51.4% of the market share. The concentration ratio of four companies (CR4) remains <40, indicating that competition remains relatively open among private hospitals at the national level.
Conclusion: Several cities have established hospital markets that are characterized by robust competition, whereas in other cities, the hospital industry remains oligopolistic or monopolistic. It is important to note, however, that this does not imply that the market structure is ineffective on account of competition; rather, it is the result of a scarcity of hospitals in a number of Indonesian cities.
Keywords: Concentration ratio, Economic competition, Herfindahl–Hirschman Index, Hospital market
Introduction
Health spending measures the final consumption of health care goods and services(O.E.C.D., 2018). Global health spending reached US$ 8.3 trillion in 2018, about 10% of global gross domestic product(W.H.O., 2020). Before the Coronavirus Disease 2019 (COVID-19) pandemic in 2019, OECD countries spent ~8.8% of their Gross Domestic Product (GDP) on average on healthcare, a figure that has remained largely unchanged since 2013. The US spends the most on healthcare, equivalent to 16.8% of its GDP, well ahead of the next highest-spending country, Germany, at 11.7%(O.E.C.D., 2021).
At the global level, the hospital service market was worth US$ 9.58 trillion in 2020 and is expected to reach US$ 16.45 trillion by 2027(Research, 2022). Similar trends are seen in Central European countries, where healthcare is currently one of the largest sectors in Germany (11.0% of GDP), Austria (10.1%), Slovak Republic (7.6%), and the Czech Republic (7.1%)(Lauraéus & , 2021). Studies have shown that increased health spending positively correlates with economic growth(Raghupathi & Raghupathi, 2020).
Healthcare industry growth will continue while private interest in developing hospitals remains. Private investments in health services have increased dramatically over the last decade, more than doubling(Scheffler et al., 2023). The private sector in India invests in tier 2 and 3 cities and outside metropolitan cities, where hundreds of investment opportunities are available in the hospital sector(Sarwal & , 2021).
The health industry in Indonesia was estimated to reach US$ 60.6 billion in 2018, a growth of 14.9% compared to 2012– 2018. Significant growth was seen in the hospital sector, with 2,083 hospitals in 2012 increasing to 2,820 in 2018(Kuntjoro & Wibowo, 2018). The pharmaceutical industry sector grew by 11.4%, increasing from 193 industries in 2015 to 215 in 2017. The medical device industry also grew by 12.6%, increasing from 215 industries in 2015 to 242 in 2017(Indonesia, 2018).
Over the last 11 years, the number of hospitals in Indonesia has increased by 80%(Trisnantoro & Listyani, 2018). However, The Indonesian tourists’ demand for medical tourism services abroad is still high. It was estimated that the total money spent by Indonesian citizens for treatment in other Association of Southeast Asian Nations (ASEAN) countries in 2016 was US$ 11.5 billion annually, with the majority (80%) spent in Malaysia. Several private and public hospitals have expanded the number of beds or built new hospitals to overcome this. According to one study, the primary motivations of Indonesian tourists seeking medical treatment in Malaysia are dissatisfaction with Indonesian medical practices and a lack of expertise in the field(Md Zain & , 2022).
The hospital industry market in Indonesia is entering a more complex phase given that the Indonesian government has currently implemented the National Health Insurance (Jaminan Kesehatan Nasional [JKN]) program, operated by the Health Social Security Administration (Badan Penyelenggara Jaminan Sosial Kesehatan / BPJS Kesehatan). From an economic perspective, the JKN program has created greater demand in the health sector(Britton et al., 2018).
On the other side, the growth in the number of hospitals in Indonesia creates a competitive business climate. However, the existence of unfair business competition practices has an impact on various parties. Hidden yet perilous forms of competition exist in the Indonesian health service industry, according to the findings of a study; these include health business mafias, monopolies, and deceit involving the concealment of patient hands(Alfarizi & Zalika, 2023). Unfair business competition, for business actors and consumers, this practice can create an imbalance in business opportunities for various groups at different levels and can lead to consumer/ community losses. A broader interpretation of the loss would be inefficiency manifested in wastage or suboptimal resource allocation(CzyÅ1⁄4ewski & , 2020).
Identifying market structure of one industry is significant as efficiency is substantially impacted by the market structure within which a company, including a hospital, operates. The characteristics of the market structure dictate the level of competition, which varies from perfect competition, characterized by a multitude of small sellers and buyers, a homogeneous product, and price-taking by all, to pure monopoly, denoting a market with a single buyer, or monopoly, signifying a market with a single supplier. Other market structures exist between these two extremes, including monopolistic competition (many sellers and many buyers offering differentiated products) and oligopoly, which is characterized by a small number of sellers who vary in size and market power. Effective resource allocation results from the efficient operation of the market, which is facilitated by a number of conditions. The primary conditions are observable with respect to the structure of the market(Mwachofi & Al-Assaf, 2011).
Unfortunately, hospital market structure research in Indonesia remains understudied. One study has been conducted in 2014 examining hospital market structure in South Sumatera Province(Tatarifah, 2014). Another study has been conducted to identify the issue of competition in the Indonesian Health Services Industry(Alfarizi & Zalika, 2023). Therefore, this study analyses the Indonesian hospital industry’s market structure and competition map through the concentration ratio (CR) and Herfindahl– Hirschman Index (HHI).
Method
This study used hospital data originating from the Online Hospital Information System (SIRS), which was obtained in October 2020 (Ministry of Health of Indonesia, 2020). SIRS is a hospital reporting system in the Ministry of Health of Indonesia that comprises hospital identity data,
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Copyright (c) 2024 Yuyun Umniyatun, Emma Rachmawati, Deni Wahyudi Kurniawan, Mochamad Iqbal Nurmansyah, Mukhaer Pakkanna, Husnan Nurjuman, Slamet Budiarto, Virgo Sulianto Gohardi
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