With a decade of political turmoil and economic boom-bust cycles behind it, the Philippines is poised to enter a period of economic development. President Fidel Ramos, who was elected in May 1992, has implemented reforms designed to open up the Philippine economy to foreign trade and investment. Measures include the deregulation of foreign exchange and the reduction of tariff rates and market barriers for imports. In addition, President Ramos is aggressively attacking corruption and bureaucratic inefficiency in order to create a more stable business environment — the time is therefore ripe for foreign firms to enter the Philippine market.
In recent years, the Philippine government has placed increasing emphasis on the country’s healthcare system. Between 1985 and 1991, for example, the national healthcare budget increased 400% to reach $386 million. During this period, government goals included increasing bed space at government hospitals, implementing a medical outreach program to rural areas and improving nutrition.
Following a review by the new Health Secretary, Dr Juan Flavier, of the previous administration’s healthcare improvement program, the plan has been streamlined and government goals have become more tangible. Under the “7-P Program,” the Department of Health (DOH) has specified seven areas for priority action. The main areas are: primary healthcare; an emphasis on preventive and promotive care over curative care; population management; and an increase in services to rural areas.
In addition, a 15-year hospital development plan, which was initiated before 1992 and is expected to cost approximately $430 million, is also undergoing review by the new DOH administration. The program is likely to be implemented in two phases. Other changes include the adoption of a new local government code, which decentralizes control over municipal, district and provincial hospitals, allowing the DOH to entrust local governments with increased management authority.
While there are far fewer public than private hospitals in the Philippines (564 public, 1,135 private), the number of public hospital beds exceeds private beds (49,273 public, 37,860 private). Public hospitals tend to place a greater emphasis on preventive healthcare, while private hospitals concentrate on curative services. Although public hospitals are undergoing expansion and upgrading of their facilities, private hospitals have traditionally been equipped with more sophisticated medical equipment because of the high cost of installation and maintenance. Not surprisingly, specialist hospitals purchase the most sophisticated, high technology equipment.
… medical equipment market
In 1993, the Philippine medical equipment market was valued at approximately $85 million, 85% of which was imported. Demand for high-tech items such as radiology, cardiology and diagnostic equipment is exclusively met by foreign manufacturers. The medical equipment market is forecast to grow around 15% over the next few years. Local production is limited to the manufacture of non-sophisticated supplies such as surgical gloves and medical furniture.
In 1987, Japan emerged as the largest supplier of medical equipment to the Philippines, capturing a 23% share of imports and disrupting the historical dominance of the market by US firms. Japan’s success has been due to its high quality equipment, complimentary offers and the assistance it gives in financing purchases. In recent years, the US has again become the market leader (accounting for 32.5% of the total market in 1991), but competition for market leadership between the US and Japan remains fierce. Other countries supplying significant volumes of medical equipment to the Philippines include Singapore, Germany and the UK.
… medical instrument sector
Medical instruments account for approximately 43% of the Philippine medical equipment market, almost all of which is imported. In 1993, the medical instrument market was valued at $36 million and is expected to grow about 20% per year. Both public and private hospitals are seeking to purchase more sophisticated diagnostic and surgical medical instruments such as stress test machines, two-dimensional echocardiography machines and cardiac monitors.
However, cost constrains mean that private hospitals offer a more significant market for medical instruments than hospitals in the public sector. Tertiary hospitals, which now number 137 and account for 12% of private hospitals, are viewed as having considerable market potential for state-of-the-art clinical and diagnostic instruments. Tertiary hospitals are equipped with such sophisticated equipment as super conductive MRI systems and three-dimensional CT scanners. Other private hospitals have more standard equipment and facilities.
Medical instruments with the best sales potential in the Philippines include: X-ray and other irradiation equipment; X-ray accessories; respiratory equipment; ultrasonic scanning devices; and electrocardiographs.
… how the system works
The DOH oversees the national healthcare system. The administration is divided into several offices including the Office of the Chief of Staff, the Office of Public Health Services, the Office for Hospital and Facility Services and the Office for Standards and Regulations. The DOH influences the hospital sector in a number of ways — it establishes and enforces minimum standards of facilities and services; it directly oversees some public hospitals; it maintains authority over local management efforts; and it promotes the development of hospitals as complementary healthcare institutions. Under the new local government code, the management of municipal, district and provincial governments has become the responsibility of local government officials. While the DOH previously maintained direct supervision over almost 600 public hospitals, day-to-day operating authority has been delegated to local government units for all but about 40 hospitals. In addition, doctors play a substantial role in the management of private hospitals, participating in decisions and frequently with a direct share in the ownership of the hospital.
Purchasing decisions for both public and private hospitals are based on various criteria. A major consideration is the international reputation of the manufacturer and the quality of the product. Most hospitals tend to purchase from companies with local distributors which provide an after-sales service. Total cost and competitive prices are also a primary concern. In the past, US firms have lost some of their market share to Asian and European companies because they have failed to provide adequate servicing. US suppliers have an advantage, however, in that their equipment does not require product modification; Philippine product standards for medical instruments are derived directly from the American system.
Medical equipment imported into the Philippines is still subject to a 10% tax and 5% levy, but these levels are being reduced by the government to encourage imports. There are no foreign exchange restrictions. Licensing and registration wit the Bureau of Food and Drug Administration (BFAD) are required for all imported products. An importer must also obtain the authorization of the foreign firm to act as its representative in the Philippines. If the imported medical equipment emits radiation, the product must also obtain additional clearance from the Radiological Health Service Bureau.
In the case of public hospitals, the government finances purchases through the DOH’s budget, under the General Appropriation Act. Public healthcare projects, which often include medical equipment purchases, also rely on funding from the World Bank, OECF, Yen Credit of Japan and USAID. Private hospitals buy on credit through bank loans, or through supplier financing.
… future prospects
With the Marcos years behind it, the Philippines should now enter a period of relative political stability and economic development. Problems — including infrastructure ineffiencies and energy shortages — still exist. However, the country’s great need for better medical care means that the market will continue to grow and should remain dependent on imports for some time. Investment in medical equipment, devices and pharmaceuticals is encouraged by the Philippine government under its Investment Priorities Plan (IPP). Diagnostic equipment such as ultrasound machines and CT scanners, disposable supplies and syringes are considered to offer very good prospects for foreign companies looking for export opportunities in the Philippines. Foreign firms should move aggressively to take advantage of the improving environment and to establish a strong position in this growing market.