Indonesia holds enormous potential to become the ‘next destination’ for clinical laboratories propelled by current shortage, widening customer base and increasing corporate requirements for clinical testing. With growing demand patterns, the industry is expected to see a huge demand for Clinical Laboratories.
In conversation with Mr. Henry Sukardi, Director of KalGen Innolab Clinical Laboratory we attempted to seek his opinion and understand his side of story to the changing fortunes of the Clinical Lab Industry and how are companies gearing up for it.
Q1) What have been the trends governing the Indonesian Clinical Lab market in the past years and how has it grown?
In Indonesia there are two types of clinical labs. First, the independent labs and second, the hospital labs. Until 2019, the growth of the labs had been fairly similar to the previous years. However, when the COVID-19 pandemic hit in 2020, things changed. There was a decrease in routine tests as an exponential increase in the COVID-19 testing could be seen. When talking about the types of labs in particular, the independent labs were ready to take on this burden, however, the hospital labs did not have a ready infrastructure to deal with the increased COVID testing. Until 2019, there were not many hospitals in the country which had their own PCR machine and BSC Level 2 facility. However, by the end of 2020, mostly all hospitals had their own in-house PCR machine including BSC Level 2 and running. Although the year 2020 saw a single digit growth rate for non COVID tests in clinical labs, the situation got a little better in 2021 and a positive growth could be witnessed.
Q2) For our research, we have categorised labs as ‘Private Independent Labs’, ‘Public Independent Labs’ and ‘Hospital Labs’. In your opinion, how much revenue do labs from each category generate in a year?
Private Independent labs in Indonesia, can be categorised into 3 major groups according to scale of portfolio test. We have the standard labs, medium labs and large labs. Out of the total Private Independent Labs in Indonesia, 60% of the labs are standard labs, 30% are medium scaled labs and only 10% belong to the large scaled category. A standard lab typically makes about 100-150 Million IDR per month. A medium lab usually makes about 400-800 Million IDR per month and a large scaled lab would make more than 1 Billion IDR per month. The top 5 players in the market have about 300 labs together.
There are two major players in Indonesia who operate in the public sector, namely, Kimia Farma and Farma Lab. When speaking of hospital labs, all labs in Indonesia now have an in-house laboratory for testing. In fact, having an in-house lab has become a compulsion for all hospitals. There are about more than 2000 labs in the hospitals in Indonesia (inclusive of public and private labs).
Q3) We have categorised the tests conducted in labs as ‘Routine tests’, ‘Esoteric tests’ and ‘Non-Laboratory tests’. According to you, what is the share that each one of these categories hold in the total number of tests that are conducted?
Out of all the tests that are conducted in labs, routine tests are the most popular. This is followed by esoteric tests lastly we have the non-laboratory tests. The share of non-lab tests is low, owing to the additional license that needs to be procured in order to carry out these tests. Hence, most of the laboratories prefer not to go through that route.
Q4) Which tests, falling under the category of routine, esoteric and non-laboratory respectively, are the most popular amongst the population in Indonesia? And what are the average prices of these tests?
Within routine tests, standard Hematology and Chemistry tests (sugar and cholesterol, etc.) are the most popular. An average Hematology test costs approximately 100,000 rupiah per test, whereas, an average chemistry test costs about 60,000 rupiah per test. For esoteric tests, wellness and Oncology tests are the most popular and an average esoteric test costs 300,000 rupiah per test. X-Rays are the most popular within non-laboratory tests.
Q5) For a lab, a patient visiting usually has 4 possible sources/referrals, namely, Doctor referral, Walk-in, Corporate Client or External referral. Additionally, there are also online platforms gaining popularity that have tie-ups with labs and give referrals. What would you say is the share that each one of these categories holds in the total number of patients who visit labs? Also, what is the nature of tie-ups that occur between referees and laboratories?
In the pre-pandemic times, labs were not allowed to put up their tests or have tie-ups on online platforms. However, with the onset of the pandemic, the online platforms have gained much popularity, and labs are now allowed to put up their tests/consultations online. This being said, most of the labs have been using online platforms only for COVID-19 tests and not for other clinical tests.
Out of the total tests conducted, for the private Independent labs, the highest share of the patients are doctor referred, followed by walk-ins and corporate clients and finally external referrals hold the smallest share. The remaining are patients who come through online platforms, however, their number is very low.
Q6) Could you present a comparison of different types of labs present in Indonesia on the basis of their accuracy rates of testing?
In Indonesia, labs follow the ISO 15189 standards for conducting tests. For private independent labs, the accuracy rates typically range near 95-98%, whereas for both public independent labs and hospital labs the accuracy ranges from 90-97% depending upon the location of the hospital- if it is present in the main cities or suburb and type of laboratory test as well. For certain tests other than clinical pathology tests, many hospitals refer to independent labs to conduct their special tests (hormone, allergy, oncology, etc.) which owes to the difference between the accuracy rates between the labs.
Q7) When it comes to the type of payment, we have 4 major sources, namely, corporate payments, private insurance, out-of-pocket payments and BPJS. What share do each one of these categories hold in the total number of payments made?
BPJS is only accepted in hospital labs. Private labs do not accept reimbursements through BPJS. Out-of-pocket payments and private insurances are accepted almost everywhere. When talking about the share, the majority of payments come in via pocket payment, followed out of corporate payment and private health insurance which have a similar share and the remaining small fraction is for BPJS.
Q8)What are the major challenges which have witnessed in the industry in recent years?
Firstly, the infrastructure in Indonesia is not ready or equipped for the new incoming technology. This means, that the infrastructure of the labs and clinics in Indonesia needs to build up from scratch to facilitate the use of newer technology. The newer Jakarta region can be considered an exception to this. Certain labs in this region are better equipped than others to adapt to the newer technology and carry out specialized tests. Hence, for many specialized tests, samples need to be sent to Jakarta for testing (especially from Sulawesi, Sumatera and Kalimantan). The second most prominent challenge which can be seen is the lack of knowledge in the market. A need to educate the patients (especially for specialized tests) can be felt. This being said, a boost in the marketing strategy for this purpose is imperative. Thirdly, there are certain regulations that make the process of setting up laboratories difficult in the market. Regulation 411 which governs the licensing process to set up a laboratory needs to be followed in the country. On average, it takes more than 1 year to set up a large laboratory. This is also one of the reasons why there is a mismatch in the demand and supply of services. The implementation of this regulation could differ from one area to the other.
Q9) In Indonesia, for every 200,000 people there is only one Clinical Lab. In your opinion, how can this shortage be curbed in the coming years?
Yes, Indonesia is currently facing a shortage of labs due to certain challenges and regulations. However, this market has a huge opportunity which can be tapped into. Specifically areas like Sumatra have a great potential to open up labs. As I mentioned earlier, samples from these areas need to be sent to Jakarta for testing. If there are labs within these areas then the shortage problem can be curbed. In fact, the general view is that many companies are likely to open up new laboratories in 2023-24.
Q10) Do you think POCC devices, which help a patient to carry out certain tests by themselves, can be posed as a major challenge or set-back for the Clinical Laboratory industry?
The POCC devices will definitely have a little impact on the industry but not a lot. For example, almost all patients have a glucose testing device with themselves. They can carry out this test at home easily. However, after doing a test for glucose, there are certain advanced tests which follow that can be carried out only through laboratories. Secondly, such devices are mostly prevalent in the bigger cities and urban areas and not the smaller regions. People in the smaller regions do not have enough knowledge and awareness to know about the device.
Q11)When talking of hospital labs, there are majorly two models which are followed. Hospitals can either have their in-house labs or they can collaborate with third party labs to carry out tests. Amongst all the hospital labs, what is the bifurcation between these two categories? In case of third party tie-ups what is the typical engagement model between the two parties?
Taking hospital labs into account in the present day, almost all of the hospitals have their own labs and a very small fraction of the hospital labs are operated by some third party lab. Prodia and Diagnos are the two labs which collaborate with the hospitals the most. A very small fraction of the hospital labs are operated by either Prodia or Diagnos. Otherwise, mostly all hospital have their own labs.
Q12) In Indonesia, we observed two models within which the clinical labs operate. First, the franchise model, and second, the privately owned model. According to you, which one is more popular and why?
The franchise model is not too popular in Indonesia. Some of laboratories used to operate on a franchise model but now they do not. These companies have bought back all of its franchises. Most of the labs work on a privately owned model and not a franchise model, the reason being quality. In order to maintain the quality of the services provided and tests conducted, labs are sticking to privately owned models. Most of the franchised labs care only about the margins and not the quality which results in customers complaining. There are very few laboratories such as HI-LAB which continue to work on a franchise model.
Q13) Given the current scenario, how do you think the industry would grow in the coming years?
In Indonesia, the market growth will be driven by the genomic and oncology market. Regular tests and medical check-ups are quite prevalent in the industry already, but personalized tests will come into play and drive market growth. Prodia and KALGen Innolab, in fact, has already started certain personalized tests (such as tests for Nutrition in genetic level, etc.) from the beginning of 2020 and are also expanding into oncology. I believe such esoteric tests will grow about 30-40% in the coming years. On the other hand, routine tests will not grow much, probably only 5%-8%. Another factor to consider when talking about routine tests is the price of the tests. It is expected that the price of routine tests is bound to increase every year in the coming years. Hence, if there is a huge growth in this sector, it might be due to the increase in price and not the number of tests.
Q14) In your opinion, what is the current customer retention rate in the market for clinical labs?
The major factors which affect a customer’s retention rate are the prices, accuracy rate, and location. If a consumer is being charged a little more from a lab where he/she knows that the results will be accurate, the customer will prefer to go to that lab. Another factor is the proximity of the lab to the consumer. He/she might not be willing to travel a lot. These three factors combined determine the retention rate of the industry. This being said, the retention rate will also vary with the type of tests. For the routine tests the retention rate can vary between 20 to 30%. However, for specific esoteric tests, the retention rate may be as high as 70%. Reason being, not all labs have esoteric tests or specialize in esoteric tests and also, a consumer would trust a tried and tested lab’s standard.
Q15) Labs in Indonesia are coming up with packages for health check-ups to increase their revenue base? Do you think this has been a success? If yes, which are the labs that are conducting such tests?
When labs offer such packages, they usually apply a 15-20% to the overall price of the tests in the package. Most of the private labs implement such strategies. They are not very popular with walk-in patients who come to the lab for certain tests. These packages have a little popularity with patients who want to carry out routine regular medical check-ups which involve all tests.