Healthcare to VietnamLast updated: 19 Feb 2015TRENDS AND OPPORTUNITIESThe marketVietnams healthcare services and pharmaceuticals markets were worth US$10.6 and US$3.3 billion respectively in 2013. The Business Monitor, Vietnam Pharmaceuticals & Healthcare Report in Sep 2014 forecasts annual nominal growth rates of approximately 15 per cent until 2018 for both. The industry remains largely underdeveloped as: the number and quality of hospitals, clinics and healthcare professionals cannot keep pace with demand pharmaceuticals are largely dispensed through lightly regulated pharmacies the culture does not support the concept of nursing homes for the elderly 40 per cent of the population is not covered by an insurance plan.Total per capita expenditure on health in Vietnam was US$233 in 2012, below that of other ASEAN countries such as Malaysia and Thailand (Source: The World Bank, Health expenditure per capita, PPP, Dec 2014).Overcrowded, poorly equipped public hospitals, underpaid healthcare professionals and limited access to facilities for the rural population are problematic. This means many patients turn to traditional remedies or to pharmacists for medical advice. The latter are often not qualified for this task. In practice, few drugs require prescriptions and counterfeit drugs are in abundance. One of the negative impacts of this situation is a high prevalence of antibiotics resistance.Health insurance is paid jointly by employees and employers as a percentage of the salary. Limited coverage, inadequate insurance plans and the need to pay bribes, means that many health costs are still out of pocket. Vietnam is currently moving towards universal health insurance coverage.OpportunitiesHealthcare servicesThe Ministry of Health estimates that available hospital beds would have to increase by 115 to 250 per cent to provide for current demand (Source: Business Monitor, Vietnam Pharmaceuticals & Healthcare Report, Sep 2014). A new healthcare law will phase in mandatory health insurance, which will cover 80 to 95 per cent of health expenses.In 2012 according to the Ministry of Health, 67 per cent of the population was insured, while it is expected that 70 per cent will be covered by a plan by 2018 and 80 per cent by 2020. The financing of hospitals will shift gradually from state contributions to fees levied on patients and these fees will be allowed to increase to achieve cost recovery. The first step in this direction was taken in 2012 and a road map is in place to complete the process by 2018 (Source: LuatVN, Decree 85/2012/ND-CP, Oct 2012).Freeing up the government health budget to expand and improve healthcare infrastructure and help to ease the lack of funds currently hindering the development of healthcare services and lead to increased demand.Public hospitals usually offer poor quality healthcare and long waiting times, often requiring patients to bribe healthcare workers to receive treatment and beds are often shared. Private hospitals are used by just seven per cent of patients, while US$2 billion is spent annually by Vietnamese residents who seek healthcare services abroad as a consequence of quality concerns (Source: Reuters, Vietnam preps for medical makeover to recoup lost billions in healthcare, 14 Oct 2014).According to the Association of Vietnamese Private Hospitals, half of the 170 existing private hospitals are struggling financially, as they often do not manage to inspire the same level of trust in potential patients as hospitals in typical health tourism destinations do (e.g. Thailand and Singapore).Australian enterprises are generally perceived as delivering high quality services, following international standards and best practices, giving the Australian hospitals or clinics in Vietnam an advantage to compete with the foreign treatment facilities.PharmaceuticalsAccording to the Business Monitor Vietnam Pharmaceuticals & Healthcare Report in Sep 2014 the annual per capita expenditure on pharmaceuticals was US$35.94, which is expected to rise along with increasing incomes, an aging population and rapid urbanisation.The rural population has limited access to pharmaceuticals and tends to rely on traditional healing practices and medicine. The prevalence of respiratory diseases (asthma and COPD), cancer, HIV/Aids, diabetes and hypertension are increasing and tuberculosis continues to pose health related challenges, fuelling the demand for pharmaceuticals. The demand for antibiotics (despite high resistance rates), vitamins and vaccines is increasing quickly (Source: Thanhnien, Surge in demand empties Vietnams vaccine stocks, 25 Jun 2014; PubMed, Antibiotic sales in rural and urban pharmacies in northern Vietnam: an observation study, 20 Feb 2014; Euromonitor International, Vitamins and Dietary Supplements in Vietnam, Aug 2014).An increasing number of Vietnamese manufacturers of pharmaceuticals are complying with national and World Trade Organization (WTO) regulation in order to meet the WHOs Good Manufacturing Practice (GMP-WHO), with about half of the domestic production reaching this standard (Source: Viet Nam News, Public shun locally-made drugs, 31 Dec 2013). Some manufacturers are aiming for stricter standards, such as EU GMP, Japanese GMP or the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Cooperation (PIC/S GMP).Approximately 60 per cent of pharmaceutical end products, as well as 90 per cent of active pharmaceutical ingredients and most raw materials for the production of pharmaceuticals are currently imported. Foreign enterprises are responsible for an estimated 20 per cent of domestic pharma production. Given the prevalence of counterfeit medicines and lack of inspection and quality control, trust in local pharmaceuticals is limited and imported goods with strong brands can take advantage of this.This creates demand for foreign investment and expertise to establish compliance. The government has allocated US$1.5 billion to be disbursed over the next 10 years on projects that benefit domestic pharmaceutical manufacturing, including the establishment of joint ventures with foreign players.(Source: Business Monitor, Vietnam Pharmaceuticals & Healthcare Report, Sep 2014)Nutritional supplements and traditional medicineAccording to the chairman of the Vietnam Association of Functional Foods, the market value of health supplement products was US$526 million in 2012, with an average annual growth rate of 25 per cent. The availability of theoretically prescription only drugs and the low quality of and difficult access to healthcare services mean that Vietnamese consumers are used to self-medication. The sale of vitamins and dietary supplements is rapidly increasing; vitamin supplements are used by 58 per cent of Hanoians (Source: vietnam.net, Foreigners earn big money from Vietnamese functional food market, 5 May 2014).Changing dietary and lifestyle habits have also caused a surge in demand for slimming as well as anti-aging products. While affordability is important, marketing efforts are central to their commercial success, despite being officially restricted.A third of Vietnamese patients seek a remedy through traditional medicine (Source: Investment & Trade Promotion Center, Traditional medicine to be modernized, 9 Feb 2011) and the government has issued an action plan (Decision 2166/QD-TTg, 30 Nov 2010) to develop the sector, stating that the potential of traditional knowledge is currently not being realised.Research, expertise and equipment are required to extract active components from plants with healing properties, as well as management and marketing skills.Aged care servicesAccording to the latest Vietnam Aging Survey, only seven per cent of the population is aged 65 and older, a consequence of war and this figure is estimated to double within 20 years, quicker than in other countries. Currently, 90 per cent of the elderly (65 years and older) have at least one child living in the same commune, resulting in in-family care, despite a high female labour force participation rate of 73 per cent (Source: The World Bank Data, Labor force participation rate, female, Nov 2014).As urbanisation takes place, the nature of aged care services is likely to change. The next generation of elderly people will be larger, wealthier and more likely to live alone or with a spouse, potentially increasing the demand for formal aged care services. Like hospitals, public nursing homes are underfunded and overrun. Private institutions are few and tend to focus on wealthier individuals. The government is trying to incentivise private aged care facilities by offering preferential access to land and a lower tax rate of 10 per cent.Due to cultural reservations against formal aged care, education and human resources in this area are limited. Niche opportunities for Australian suppliers lie in management and staff training and development, as well as in health related information and communications technology (ICT). Financial constraints may limit the scope for foreign investors to run nursing homes.Equipment and devicesVietnams medical device market is growing steadily, reaching an estimated market size of US$200 million in 2013, with 90 per cent of medical devices imported, mainly from Japan, USA, Singapore and China (Source: GIFT, Appropriate Healthcare Equipment for Emerging Markets, Mar 2014).Government funded hospitals account for 70 per cent of demand for medical devices, the remaining coming from foreign owned hospitals and clinics, local private hospitals and research and educational institutions. However, foreign suppliers cannot sell to government hospitals directly and have to work with a domestic intermediary or partner.The use of telecommunication and information technologies (Telemedicine) in order to provide clinical health care at a distance is currently being tested. The government has expressed support for biotechnology, but any development in this area is starting from a very low base and in a difficult environment.Competitive environmentThe Vietnamese government has committed to a rapid development of the health sector and to improving the standard of facilities. Partnerships have been forged with countries such as the USA, Belgium, Indonesia and Thailand regarding health infrastructure, training, research and insurance setup. The government encourages private sector participation in the healthcare system and welcomes foreign investors providing services and collaborating with Vietnamese pharmaceutical manufacturers.French and US companies are the dominant foreign players running hospitals, while companies based in Thailand (Bumrungrad Hospital Pcl), Indonesia (Lippo Group), Malaysia (IHH Healthcare Bhd, KPJ Healthcare Bhd), Singapore (Chandler Corporation, Parkway Holdings), India (Fortis Healthcare) and Canada (Triple Eye Infrastructure) are currently setting up operations or have expressed an interest in establishing facilities. Domestic organisations planning to expand their operations in Vietnam include the Saigon Institute of Technology (SaigonTech) and VinGroup (owner of VinMec hospital). Healthcare service providers also compete for patients with healthcare tourism destinations.Pharmaceutical companies are faced with erratic price increases and a price approval regime which disadvantages importers. Government policies attempt to give preference to domestically produced pharmaceuticals, though consumers are generally sceptical of their quality.Foreign manufacturers and major domestic players: Sanofi-Aventis Bristol-Myers Squibb GlaxoSmithKline Roche and United Lab HauGiang Joint-Stock Co Vipaco and Vabiotech.TARIFFS, REGULATIONS AND CUSTOMSRegulationsThe three most important laws governing healthcare are the: Pharmacy Law No. 34/2005/QH11, 14 Jun 2005, with Decision No. 1203/BYT/QD regulating medicine registration and licensing Health Insurance Law, No. 25/2008/QH12, 14 Nov 2008 with Decree No. 85/2012/ND-CP, 15 Oct 2012 Medical Examination and Treatment Law No. 40/2009/QH12, 23 Nov 2009.Foreign investors entering the Vietnamese market through Private Public Partnerships (PPP), profit-sharing arrangements or joint ventures enjoy a preferential corporate income tax rate of 10 per cent (in place of the regular 25 per cent), tax exemption over the first four years of a project and a 50 per cent subsequent tax break in the following nine years (Source: HKTDC, Vietnam private healthcare sector lures foreign investors, Jul 2013).Foreign investors are allowed to operate 100 per cent foreign owned hospitals and clinics, with no restrictions placed on foreign qualified doctors to practice and foreign backed insurers are allowed to offer healthcare plans. Foreign owned enterprises are permitted to operate in the areas of drugs production, drugs maintenance, drug testing or the import of drugs (Circular No. 10/2013/TT-BYT), but not in distribution (Circular 09/2007/TT-BTM).The National Strategy on the Development Scheme of Vietnams Pharmaceutical Industry up to 2020, with Vision to 2030 (Decision No. 68/QD-TTg, 10 Jan 2014) aims to support domestically produced pharmaceuticals. This includes promotional activities addressing healthcare professionals and patients, Vietnamese people give priority to use Vietnamese medicines, but also encouraging joint ventures. Future regulations might present further disadvantages for imported pharmaceutical products.The price of pharmaceuticals is theoretically overseen by the Drug Administration Department of Vietnam (DAV) in coordination with the Ministry of Finance. Importers must submit price suggestions for approval for each product, although implementation of this policy is lax. All material advertising pharmaceutical products must be registered with the DAV and certain types of drugs may not be promoted on TV, restricting advertising to print. Nutritional supplements advertising has been prohibited since 2013, but the ban is not implemented.Industry standardsWTO commitments require manufacturers to follow GMP-WHO and an increasing number of domestic producers comply with these standards. The government requires following the Good Pharmacy Practice (GPP), but few have been certified (Source: Business Monitor, Vietnam Pharmaceuticals & Healthcare Report, Sep 2014). Domestically produced generic pharmaceuticals are not usually obliged to present proof of bioequivalence, which reduces production costs.Domestic clinical trials are required for marketing approval pertaining to pharmaceuticals that have not been made available in their country of origin for more than five years. This includes newly imported medical devices associated with new therapies or new functions. Imported biological products and new batches of vaccines must undergo quality testing by the National Institute for Control of Vaccine and Biologicals. The capacity for such trials and tests is very limited, which causes delays. Approvals are valid for five years.Pharmaceuticals require a free sales certificate, GMP certification and authorised letter and certificate of analysis and samples. Imported goods additionally require a certificate of pharmaceutical product (CPP) from the country of manufacture or packaging.Medical devices require a certificate of quality standards, methods of testing, the devices composition breakdown listing all its chemical ingredients and operational license with safety and quality and hygiene standard testimonies or cosmetic good manufacture practice certificate. Imported goods require an original catalogue, instruction manual and technical guide (including a Vietnamese translation), manufacturers quality certificate (either ISO 13485 or ISO 9001 certification or FDA/CE approval of the device manufacturing site), free sale certificate from the country of origin and a quality declaration letter.Fortified foods are regulated as food products and supplements as over the counter drugs.TariffsThe maximum rate of 14 per cent is due to decrease to five per cent (including supplements and functional food) in line with Vietnams WTO obligations (Source: Business Monitor, Vietnam Pharmaceuticals & Healthcare Report, Sep 2014).The average tariff rate to be reached for medical devices is zero to five per cent and 25 to 40 per cent for nutritional supplements and VAT is applied at the standard rate of five to 10 per cent.MARKETING YOUR PRODUCTS AND SERVICESMarket entryThe bureaucratic nature of Vietnams health system makes market entry difficult. However, the government explicitly supports the establishment of foreign owned hospitals, clinics, joint-ventures and PPP in pharmaceutical manufacturing (excluding distribution).Australian exporters of pharmaceuticals and sellers of devices to public hospitals are required to cooperate with a local partner for distribution purposes. Partnerships can help to avoid a tightening regulatory environment not in favour of imports of pharmaceutical products into Vietnam.Distribution channelsMost government hospitals procure medical devices though bidding, which is organised by the Ministry of Health. Foreign companies are not allowed to submit a tender and must form a joint venture or utilise a local distributor. Private hospitals and clinics purchase directly from distributors (Source: GIFT, Appropriate Healthcare Equipment for Emerging Markets, Mar 2014).Hospitals mostly purchase pharmaceuticals through bidding, which is subject to a price ceiling per medicament set by the regional health department. Foreign investors are prohibited from distributing pharmaceuticals and must cooperate with a domestic wholesaler. Access to healthcare, even to pharmacies, is generally limited in rural areas; the rural population tends to travel to cities to seek medical treatment or purchase products. Disruption is expected in pharmaceutical retailing through the entry of pharmacy chains.