As President Yudhoyono started his second five-year term in October 2009, his administration continued discussions with the House of Representatives on the new Hospital Bill. This seeks to rectify and improve the much needed legal framework for the management of hospitals in the country, both as centres for medical services for the public and as a high potential industry requiring significant investment and proper management.
The discussion on the bill came slightly more than a decade after the 1998 reform movement and the ensuing amendments in 1999-2002 of the Indonesian 1945 Constitution, which specifically recognises healthcare and health services as a constitutional right for the Indonesian people. On October 28 2009, the government enacted Law No. 44 of 2009 on Hospitals (Hospital Law).
With a growing population of approximately 231 million – by the end of 2009 – and with a growth rate of approximately 1.12% per year, there is inevitably an increasing need for improved healthcare and medical services throughout the country. The scarcity of local hospitals that can meet this demand has become evident in recent years – with some Indonesian citizens (mostly members of middle class and upper class society) opting to fly to neighbouring countries such as Singapore and Malaysia for medical treatment.
The Hospital Law recognises that hospitals play a strategic role in shaping and improving the health level of the Indonesian population. It also recognises the special characteristics of hospitals in the modern world, in which their presence and survival depend on the development of medical science, technology and the economy. As an important component of Indonesian life, hospitals today must therefore be able to provide quality service and at the same time be affordable to the people.
In a bid to realise the level of health services envisaged by the 1945 Constitution, the government enacted the Hospital Law (which some see as being both ‘pro-patient’ and ‘pro-business’). It did so in order to address the deficiencies of the previous legal framework in regulating various aspects of the hospitals sector in Indonesia, such as investment, licences, human resources and safety procedures. The harmonisation of these forces is expected not only to improve health services in the country, but also to attract investment in the hospitals sector.
The Hospital Law clearly suggests that the government will not be able to fund hospital investment alone, despite it aiming for a higher slice of the total national budget to be allocated to the health sector. Therefore, enactment of the Law is expected to bring about opportunities for public-private partnerships and private investment in the hospitals sector.
Hospitals as a line of business
The Indonesian government regulates from time to time specific lines of business that are reserved for Indonesian parties/investment, i.e. those that are closed for foreign investment, and also those that are open to foreign investment with certain limitations. This is codified in a presidential regulation publicly known as the ‘negative list’. Under this list, the hospitals business in Indonesia is generally closed to foreign investment, with the only exception being in the cities of Medan and Surabaya where hospitals are open to a maximum of 65% foreign investment.
This essentially means that in theory a foreign party may establish a hospital in Medan and/or Surabaya by forming a joint venture company with an Indonesian party (namely an Indonesian citizen and/or an Indonesian company whose shares are entirely owned by Indonesian citizens). In practice, however, this remains subject to the actual demand for hospitals in Medan and Surabaya and on the official spatial planning of the regions.
This is expected to change with the introduction of a new negative list, which is being prepared by the government and which is expected to be issued in the next couple of months. In a recent statement, the new chairman of the Investment Coordinating Board confirmed that the government will issue the new list and that it will provide for, among other things, more opportunities for foreign investment in the hospitals sector in Indonesia.
The government expects to make way for the entry of foreign investment in this sector (it is proposed that the maximum foreign ownership be 67%) to compete with national hospitals, not only in Medan and Surabaya but throughout the country. By this move, the government expects that the quality and resources of national hospitals will improve and that the number of Indonesians seeking medical treatment overseas will decrease.
Although the certainty of a more open foreign investment policy in the hospitals sector still depends on the issuance of the new negative list, the Hospital Law makes specific reference to ‘foreign investment hospitals’. This suggests a more open approach to foreign investment in the hospital line of business.
Types of hospitals
The Hospital Law sets out the different types and classifications of hospitals depending on their services and management. Based on the type of services they provide, hospitals can be categorised either as general hospitals or specialist hospitals (namely hospitals that mainly provide treatment in one particular medical field). Based on their management, hospitals can be categorised either as public hospitals or private hospitals. Public hospitals may be run by the government, regional government or not-for-profit legal entities.
General hospitals will have four classifications – A to D – depending on their facilities and their capability to serve patients. Hospitals with advanced facilities and higher capability will be classified as level A, while hospitals with minimal facilities and less capability will be classified as level D. This is intended to create some form of hierarchy, where more capable hospitals can be a point of reference for those that are less capable. Special hospitals have a similar structure but have three levels – A to C. Details of the specific obligations incumbent upon hospitals in each of these classifications are yet to be seen and are to be further regulated by the minister of health.
Technical requirements
Compared to previous regulations governing hospitals, the Hospital Law provides a more comprehensive set of requirements for the establishment and the operation of hospitals. These include requirements pertaining to the location of hospitals, their building specifications, infrastructure and facilities, human resources, drug and medicine supplies and equipment. Available locations will be determined by the demand for hospitals in the relevant region and must be in line with the region’s spatial planning.
Hospital buildings must satisfy the required minimum standards in terms of their specification and must provide dedicated rooms as set out in the bill. Those minimum standards for dedicated rooms include, for example, an emergency room, a room for training and education, a radiology room, a morgue, and also a garden.
With regard to human resources, the Hospital Law allows hospitals to employ foreign medical staff on condition that this is needed by the hospitals and that the foreign medical staff will transfer their skills and knowledge to local doctors and staff.
Rights and obligations of hospitals and patients
The Hospital Law sets out specific rights and obligations of hospitals as well as the rights and obligations of patients. This appears to be an effort to balance the protection given to hospitals and patients. For example, the Hospital Law provides that hospitals are protected by the law in rendering their services. But it also provides patients with the right to claim against the hospitals if they believe the services provided to them breach the prevailing laws and regulations, such as being denied the right to obtain medical records. Another provision that stands out under the Hospital Law is the obligation for hospitals to provide services (to the extent of their capabilities) to those that are unable to pay set rates in emergency situations without a requirement to pay upfront fees.
Licences
All hospitals must have licences for both their initial establishment and their operation. An establishment licence is given for a period of two years and is extendable for a further one year. An operational licence is given for a period of five years and may be renewed as necessary, provided the hospital complies with the prevailing laws and regulations.
To establish a foreign investment hospital, the foreign investor and its Indonesian partner must first secure a recommendation from the Investment Coordinating Board (BKPM) and a recommendation from the competent authority in charge of health affairs at the relevant provincial government. After securing those recommendations, the parties can apply for a hospital licence from the minister of health.
The Hospital Law is unclear, however, with regard to the sequence and the timing of when each of those licences must be obtained. This will likely involve further consultation with the relevant ministry and/or regional government. Depending on classification of the hospital, the licence will be issued by the minister of health, the provincial government or the municipal/regency level government.
The Hospital Law is expected to bring about considerable improvement for Indonesia’s healthcare system and more opportunities for foreign investors in the hospitals sector throughout the country. If implemented correctly, the Hospital Law will play a significant role in boosting the quality of medical services in Indonesia and in rendering a variety of health services to its diverse population. The provisions of the Hospital Law appear to have the essential need to attract investment.
For further information, please contact:
Harun A. Reksodiputro
Telephone: +62 21 515 4885
Email: harun.reksodiputro@bakernet.com
Dede Fikry
Telephone: +62 21 515 5357
Email: dede.fikry@bakernet.com