Healthcare companies are often touted as being recession-resistant, as medical care is considered a necessity and that people will pay for it even when times are bad. However, investors should note that healthcare companies are not immune to risks and bad events, as they are still, after all, for-profit businesses.
Hospitals, medical device makers, and clinics all fall under the heading of “healthcare,” even though in reality, they represent a wide swath of different products and services. Depending on their position within the supply chain and their relative usefulness to the general public, such businesses may either be faced with competitive threats or product substitution woes, or be overtaken by new technologies.
Here are two key risks healthcare providers may face that may dampen the demand for their services.
Medical tourism decline
Hospitals are most susceptible to this trend, as medical tourism may represent a significant bulk of their revenue and profits. Listed hospital operators such as Raffles Medical Group (SGX: BSL) and IHH Healthcare Berhad (SGX: Q0F) may see demand spill over to cheaper countries with international hospital services and facilities. As a recap, medical tourism is a term used to describe a situation where people who live in one country travel to another country for quality medical treatment, which is usually absent in their home country.
In fact, the flow of medical tourists to cheaper hospitals such as Bumrungrad Hospital Public Co Ltd (BKK: BH) in Thailand has crimped demand for Raffles’ hospital services in Singapore, causing the group to look farther afield in China for growth opportunities by building new hospitals in provinces such as Chongqing and Shanghai.
As cheaper alternatives pop up in Asia’s emerging economies that can provide the same, if not a better, level of healthcare, more and more medical tourists may give Singapore and Malaysia a miss and head on to these countries’ hospitals instead.
Telemedicine refers to the remote diagnosis and treatment of patients by means of telecommunication technology, such as the internet, smartphones, and apps. In recent years, the rise of what is known as “doctor apps” has been notable, and some start-ups are working in a regulatory sandbox overseen by the Ministry of Health on clinical and data governance.
In a nutshell, telemedicine apps help patients to consult doctors remotely, without needing to physically travel to a clinic or hospital. With the rise of Artificial Intelligence and “Big Data,” it is also easier for apps to make suggestions as to a patient’s condition and what treatments he may need, though this is limited mostly to generic conditions and diseases.
Assuming this technology takes off, the market for clinical consultation may become much more fragmented, as the app lowers the barriers to entry for doctors to get in touch with their potential patient pool. Though a Business Times article has mentioned that in at least 30% to 40% of cases, doctors still require the patient to come into the clinic for a face-to-face consultation, the rise of telemedicine cannot be ignored as it will save time and travel costs for those who may live in far-flung or remote areas of a large country.
Evolving technologies may pose new threats
The above are just two examples of potential risks on the horizon for healthcare companies to watch out for. Remember that technology is evolving at breakneck speed, and such new technologies could easily alter existing business models or render current business practises obsolete, even in the healthcare industry, where demand is perceived to be more resilient. Investors need to stay alert and not let their guards down.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore contributor Royston Yang owns shares in Raffles Medical Group.
Motley Fool Singapore 2019