New Regulation Opens Up Foreign Investment Opportunities in Indonesia’s Hospital Sector

Indonesia’s hospital sector is now open to 100 percent foreign investment thanks to the Omnibus Law. Its implementing regulation GR 47/2021 reduces the number of beds for hospitals owned by foreign direct ownership.

Indonesia’s healthcare industry is expected to see continued growth as the expansion of the country’s middle-class and universal healthcare drive demand. The country has the world’s largest universal healthcare program, covering over 200 million people.

Foreign investors seeking to do business in Indonesia’s hospital sector should note new provisions released via Government Regulation 47 of 2021 (GR 47/2021) under the Omnibus Law.

GR 47/2021 reduces the number of beds for hospitals owned by foreign direct ownership and mandates all hospitals to provide support services, such as laboratory services, blood services, and nutrition services.

Due to a lack of infrastructure and funding in Indonesia’s healthcare system, many Indonesians travel abroad for medical treatment, especially to Singapore and Malaysia. The total direct and indirect costs associated with this outbound medical tourism are estimated at over US$6 billion annually.

However, with the onset of the pandemic and subsequent travel restrictions, Indonesians have been forced to turn to local hospitals and thus the government has sought to improve the regulatory landscape to attract more investment to improve the industry’s outlook and service potential.

The liberalization of Indonesia’s hospital sector

Under the Omnibus Law, Indonesia has liberalized several sectors of its economy, including certain subsectors of the healthcare industry. Hospitals are now open to 100 percent foreign investment, from the previous 67 percent for non-ASEAN investors. ASEAN investors were allowed up to 75 percent ownership.

Further, the Omnibus Law has simplified the business licensing process through the introduction of a risk-based business licensing system. Under this system, business activities are assessed based on the scale of the hazards they can potentially create (low risk, medium-low-risk, medium-high-risk, and high-risk business).

Hospitals are classified as high-risk businesses and so will require a registration number (Nomor Induk Berusaha – NIB), and a license.  The license will be issued once the business has fulfilled certain conditions and verifications set out by the central or regional government.

Main clinics (those that offer specialized healthcare) are also open to 100 percent foreign investment, whereas pratama clinics (those that offer only basic healthcare services) are closed to foreign investors and are reserved for local small and medium-sized enterprises.

The classification of private hospitals in Indonesia

GR 47/2021 retains the classification criteria under the previous regime whereby hospitals are categorized into two categories:

• General hospitals – provide services in all areas and types of diseases; and
• Specialist hospitals – provide primary services for one particular type of disease or other specialties.

General hospitals are classified into Class A, B, C, and D, whereas specialist hospitals are classified into Class A, B, and C.

These classifications are related to the number of inpatient beds allocated at each private hospital class, as illustrated below.

Hospital Classification in Indonesia
Hospital classification	Number of inpatient beds
	Class A	Class B	Class C	Class D
General hospitals	Min. 250	Min. 200	Min. 100	Min. 50
Specialist hospitals	Min. 100	Min. 75	Min. 25	–

Relaxation on the required number of inpatient beds for foreign-owned hospitals

Foreign-owned general hospitals must meet the obligations for either a Class A (min. 250 beds) or Class B (min. 200 beds) classification to provide at least 200 beds while the inpatient bed requirements for foreign-owned specialist hospitals have been reduced to least 100 beds.

However, this does not apply to dental hospitals, specialist eye hospitals, ear, nose, and throat hospitals, and head and neck surgery hospitals.

 

 

Private hospitals must comply with the following room requirements:

1. 40 percent of the total beds are allocated for in-patient ‘standard class’ rooms for members of the national health insurance program;
2. 10 percent of total beds are allocated for intensive care units; and
3. 10 percent of the total beds are allocated for isolation wards which can be increased to 20 percent in the case of a public health emergency such as an outbreak.

For public hospitals:

1. 60 percent of the total beds are allocated for in-patient ‘standard class’ rooms for members of the national health insurance program;
2. Six percent of the total beds are allocated for intensive care units; and
3. 10 percent of the total beds are allocated for isolation wards which can be increased to 20 percent in the case of a public health emergency such as an outbreak.

The government has given hospitals in Indonesia until January 1, 2023, to comply with the minimum number of inpatient standard rooms.

New obligations imposed on hospitals in Indonesia

GR 47/2021 has imposed new obligations on hospitals in Indonesia:

• Hospitals must provide accurate information about the services they provide;
• Hospitals must provide safe, excellent, anti-discriminatory services;
• Maintain medical records;
• Provide emergency services to patients in accordance with their service capabilities;
• Provide services to the underprivileged and the poor;
• Hospitals must provide health services during disasters in accordance with their service capabilities;
• Implement a referral system;
• Provide correct, honest, and clear information regarding the rights and obligations of the patient;
• To have and develop an accident and disaster management system;
• Implement hospital ethics;
• Protech and provide legal assistance for all hospital staff;
• Implement government regulations in the health sector;
• Prepare and implement internal hospital regulations; and
• Enforce regulations to ensure the hospital environment is a smoke-free area.

Additional supporting services provided by hospitals in Indonesia

Both general and specialist hospitals are obligated to provide additional support services. These supporting services are those provided by medical and non-medical staff.

Additional Supporting Services Provided by Hospitals in Indonesia
Medical staff	Non-medical staff
Laboratory services	Hospital management
Medical record services	Information and communication
Blood services	Maintenance facilities and medical devices
Nutrition services	Laundry/cleaning services
Centralized sterilization services	Corpse handling
Other supporting services

Sanctions

Hospitals that fail to adhere to the obligations set under GR 47/2021 will be issued sanctions in the form of a written warning, an administrative fine of up to 100 million rupiah (US$7,000), and/or the revocation of the hospital’s license.

Huge market for hospitals and healthcare facilities in Indonesia

Indonesia has one of the lowest hospital beds per thousand population in ASEAN at 388,105 beds or 1.49 beds per thousand. The low number of beds reflects the opportunity for foreign investors to fill this gap, especially in second-tier cities such as Bandung and Surabaya.

In the long term, Indonesia’s healthcare industry is expected to see continued growth as the expansion of the country’s middle-class and universal healthcare drive demand. Indonesia has the world’s largest universal healthcare program, covering over 200 million people with those registered in the program able to receive free health services ranging from dental check-ups to organ transplants.

Further, other sub-sectors such as the pharmaceutical industry (which has also been liberalized to 100 percent foreign investment) are expected to see growth with demand being driven by products used to treat lifestyle diseases.

Further Reading

• Indonesia’s Omnibus Law: Risk-Based Business Licensing
• Indonesia’s Healthcare Industry: Growing Opportunities for Foreign Investors
• Indonesia and Singapore Sign Important Defense, Airspace Management, and Extradition Treaties

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