IHH, KPJ, Sime Darby: Why listing healthcare is such a dangerous thing

Greed is good. Or is it?

Have you heard of these rumblings before? A simple procedure may cost us RM10,000. Delivering a baby may cost you more than RM10,000 in total. A son who faced with his passing father is slapped with total hospital bill of more than RM100,000 in the process of trying to save his dying father. The hospital would not let go of the body until all the outstanding bills are cleared. How ridiculous, but it is happening.

There is no doubt that these are charges which are the results of greedy hospitals and some medical practitioners - taking advantage of people who need healthcare assistance. Are these charges called for? Yes, we may say there is public hospital as an option.

But see this...

IHH is controlled by Khazanah, KPJ by Johor Corp and Sime Darby which is going strong on expanding its healthcare portfolio is owned by ASB / PNB. These are all states corporations and the hospitals they own are the largest hospital groups in the country. Are these government who owns the states corporation for the public or for the profits, you may wonder?

IHH for example, registered at most RM400 million last year as a group (inclusive of the Turkey's subsidiary - Acibadem group) This year, they sort of promised RM800 million. Double the profits? For a group which already has such long presence, what do you think they will do to register such profit growth? Either they already would have to double their presence (hospital beds) over such short period of time or do the unethical - increase their charges inconsiderately! Do you think within less than a year they would be able to increase their total visiting patients to high double digit percentage. No! They probably are not even able to increase their occupancy (per hospital). (Do you see these numbers reported in the Annual Report or Prospectus? No, I have yet to see them)

The most important number I want to see is the Average Revenue per Patient which I am not able to see. Why? They do not want to let us see how ridiculous this stats are - how much these numbers increase year on year. IHH has no choice but to reach the RM700 - RM800 million profit benchmark this year, as it is now they are being valued at more than RM25 billion (i.e. more than 60x historical PE). If they don't a much higher bottomline, it would be a disaster as investors would be claiming that they are over promising.

As the government, what would you do if the private hospitals increase their rates exorbitantly? Control these hospitals from increasing their rates? I do not see that. Adding to that, doctors are now asking for allowance to increase their fees. Don't you feel surprise that the doctors themselves are claiming the high charges all the while are due mainly to the hospitals, Managed Care Organizations and insurance companies?

Now, I feel that the government has no choice but to allow the doctors to increase their fees, otherwise this most important part of the chain is going to do a silent boycott (or the least, voice out their displeasures)! Imagine what can happen when the doctors are unhappy.

In increasing profits, another way to achieve that is by reducing costs - even this is dangerous don't you think as reducing costs could as well be reducing the number of staffs per patient or not increasing their wages proportionately to the increase in revenue. Mind you, these are all dangerous, and I can see it coming.

At a time when during the most critical of economic times, Barack Obama's administration is trying to solve the healthcare issues (which has been running for decades) of his country, we are embracing our ownership of this potentially catastrophic idea - celebrating private ownership of healthcare.

Could we have moved onto the wrong direction?

I am not against private healthcare but over-concentration in getting the numbers may be a really bad thing.