The Ministry of Health’s (MOH) new and updated fee benchmarks should help private healthcare service providers cope with high inflation as well as increase in labour costs especially amid the shortage of nurses, says DBS Group Research analyst Rachel Tan.
On June 16, the MOH released new fee benchmarks for certain types of hospital stays and surgical procedures, aside from updating existing benchmarks to factor in inflation. The benchmarks serve as a reasonable guideline of fees that patients and insurers could expect to pay and serve as a reference for doctors and hospitals in setting their fees.
The ministry first introduced this in 2018 for 200 common surgical procedures, covering 85% of surgical cases in the private sector. Subsequently, in 2020, the MOH expanded the list to include anaesthetist fees and doctors’ inpatient attendance fees.
In the recent update, the ministry extended another 1,900 surgeon fee benchmarks for less common procedures — covering the remaining 15% of surgical cases in the private sector. This covers all 2,100 procedures which can tap on MediSave and MediShield Life.
Overall, the MOH has raised surgeon fee benchmarks against the last price setting in 2018 and 2020 by 2.3% CAGR over a 6-year timeframe; anaesthetist fee by 2.4% 5-year CAGR; and doctors’ inpatient attendance fee benchmarks by 2.8% 3-year CAGR, Tan notes.
While the increase may appear higher than the average past 5-year consumer price index (CPI) of 1.8% per annum and healthcare CPI of 1% per annum, it is considerably below the recent increase in inflation, Tan highlights. The CPI from the start of the year to April rose 6% y-o-y, while healthcare CPI increased to 4%.
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“Given that the prices will be reviewed every 3 to 5 years, a fair comparison, in our view, would be the average of 5-year historical CPI and 3-year forward CPI at current rate, which is at 3.4% and 2.1% respectively. Accordingly, the per annum growth rate appears to be within this range,” she adds.
Although the fee benchmark is not mandatory, about 90% of doctors have been charging within the recommended surgeon fee benchmarks since its introduction, according to the MOH. According to DBS’s channel checks, both Raffles Medical Group BSL and IHH Healthcare Q0F are pricing within the benchmark rates.
“While we do not expect a sudden spike in profitability following from this, we expect longer term margins can be sustained to ensure healthcare service providers continue to provide good quality healthcare services for the benefit of users of healthcare services,” says Tan.
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The complete list of procedures and services will also assist medical insurance providers to improve medical coverage and ease the medical claims process. This ensures the ecosystem of private healthcare networks in Singapore are all aligned, Tan points out. Additionally, transparency in pricing will ultimately benefit patients in understanding the pricing structure of healthcare in Singapore.
Among the hospital players, DBS has a “buy” rating on IHH Healthcare with a target price of $2.20. It has a “hold” rating on Raffles Medical with a target price of $1.48.
Meanwhile, UOB Kay Hian (UOBKH) analysts Llelleythan Tan and Heidi Mo have a “buy” call on Raffles Medical with a target price of $1.90. This is on the back of several tailwinds and attractive valuation arising from recent share price weakness.
During its 34th AGM, Raffles Medical noted that Raffles Hospital Chongqing and Shanghai are expected to perform better in 2023, driven by the removal of China’s zero-Covid-19 policy. The analysts expect a ramp-up in contributions from Raffles Medical’s Chinese hospitals as patient loads recover, aside from forecasting that its Beijing and Shanghai hospitals would command higher billing intensity and better margins given their respective favourable geographic locations amongst expatriates.
Looking at its 2HFY2022 ended December results, the analysts expect the company’s hospital services segment to benefit from the return of foreign patients. Its hospital services ebit grew 106.8% y-o-y and 286.2% h-o-h as Singapore reopened its borders. The UOBKH analysts expect Raffles Medical’s 1HFY2023 hospital services segmental earnings to surge given the sharp h-o-h recovery during the period.
As at 11.52am, shares in Raffles Medical are trading 1 cent lower or 0.74% down at $1.34, while shares in IHH are also trading 1 cent down or 0.58% lower at $1.70.
