Public-Private Partnerships in Healthcare: Opportunities and Challenge

In Vietnam, the state budget currently only meets 64 percent of the healthcare infrastructure investment needs. The financial shortage has prompted the Vietnamese government to focus on mobilizing private resources to achieve public health goals. 

Overview of current public-private partnerships (PPP) projects in healthcare 

Vietnam is undergoing an economic and demographic transformation that offers enormous potential for its healthcare industry. According to Fitch, in 2019, Vietnam’s spending on healthcare reached roughly $17 billion, equalling 6.6 percent of the country’s GDP. Authorities expect that healthcare spending in Vietnam will reach $23 billion by 2022 at a compound annual growth rate of 10.7 percent. 

Besides that, the hospital network in Vietnam is quite extensive with 1,531 hospitals, among which 86 percent are public and 14 percent are private. The 1,318 public hospitals are managed following a hierarchy including central, provincial, and district or commune levels. 

On the other hand, private providers are simultaneously growing rapidly with an average of 1,300 private clinics and 9.6 new private hospitals opening each year. Currently, 50 out of 63 provinces and cities have at least one private hospital with an average rate of 1.7 private beds per 10,000 people. 

In major cities, private medical facilities provide 32.2 percent of outpatient services and 6.3 percent of inpatient services. However, private healthcare in Vietnam only accounts for 5.4 percent of the sector, while the figures for Latin American and Asian countries stand at 20-30 percent. 

Consequently, local authorities have been developing health systems by calling for domestic and foreign private financiers to invest. For example, within 5 years, Hanoi plans to develop 15 new hospitals with a total of 5,000 beds and worth 8.6 trillion VND.

Opportunities

Demographic factors

The healthcare sector in Vietnam is evaluated as having a lot of potential due to the recent demographic and socioeconomic changes. Vietnam's rapid economic development has spurred the demand for more specialized and high-quality healthcare services, especially with the growing middle class.

Additionally, the COVID-19 outbreak has again demonstrated the great importance of health, consolidating its priority for the Vietnamese people. What’s more, due to the growing concern about food safety, pollution, as well as unsafe working and living conditions, Vietnamese people are also willing to spend more money on medicine and health care. 

According to the United Nations Population Fund (UNFPA), the country has entered the aging phase since 2011. By 2038, it is expected that 20 percent of Vietnamese people will be over 60 years old. Plus, as more women enter the labor force, the falling birth rate will accelerate the aging of the population, hence straining the social welfare system. 

Healthcare system expansion

With the increasing income levels and living conditions, today, Vietnamese people are gradually more interested in the healthcare sector. To prevent overload and ensure that both urban and country patients can access health services, the government continues to fund the construction of new hospitals. 

Since public hospitals are dependent on government funding, Vietnam will need to mobilize various sources of investment to improve its medical facilities. To help the government reduce the burden of the rising healthcare costs, Vietnam is extensively looking for investment from the private sector and international companies through PPP and joint venture projects. These changes mean that there will be more business opportunities in the Vietnamese healthcare sector in the coming years.

Free-trade agreement

The Vietnamese government has implemented strategies that promote the development of the healthcare industry. Besides, the growing demand for qualified healthcare services and the application of the EU-Vietnam Free Trade Agreement (EVFTA) are driving forces for private investment in the sector. 

With the EVFTA, it is expected that Vietnamese healthcare will attract more EU businesses by solving specific problems that firms have had inquiries about for many years, such as property rights and intellectual property. 

For example, the enforcement of the EVFTA will eliminate tariffs on pharmaceutical products from the EU, while allowing foreign companies to import and sell pharmaceutical products to Vietnamese distributors and wholesalers. 

Limitations in legal policy framework and investor's perspective

While the government and authorities have made great efforts in bringing about positive transformations for the healthcare system, there still lie some limitations in the legal policy framework that investors should be mindful of, especially with concern to PPP healthcare projects. 

The definition of PPP focuses on infrastructure development, disregarding the role of PPP service. The term also makes no mention of long-term contracts, transfers of risk, management responsibilities from the public to private sectors, or result-based payments. 

In addition, the current PPP framework lacks important regulations and guidelines for screening PPP projects, allocating risks, providing government support, and discretionary proposal management. Along with that, the legal documents applied to PPP projects have not ensured completeness and consistency. 

Evidently, Vietnam has the potential to develop the Public-Private Partnerships in Healthcare model. Yet, currently, an application of PPP in the service sector is still in great need. Improving this shortcoming can open doors for the private sector to contribute toward a comprehensive, advanced, and sustainable healthcare system. 

A more forward-looking PPP regulatory framework integrated into the national health financing strategy is highly anticipated by investors. Moreover, in the field of medical equipment, enterprises hope that the decrees regulating the model of placing machines at public medical facilities will soon be approved this year. Thus, in the immediate future, investors interested in healthcare PPPs should consult with experienced and dedicated experts to navigate this dynamic sector. 

Do not hesitate to contact Viettonkin Consulting now via our website to make great use of our extensive connection in the field and our world-class service.