Healthcare to Vietnam

Trends and opportunities

The market

Healthcare expenditure in Vietnam in 2016 is estimated at US$14.9 billion and expected to reach US$21.6 billion by 2020 (Source: BMI, Vietnam Pharmaceuticals & Healthcare report, November 2016). Key market drivers are a large and expanding population, rising incomes and improved access to healthcare services. Ongoing healthcare system reforms will continue to focus on expansion and improvement of access to health services, stronger regulatory frameworks, balancing between public healthcare coverage and higher private spending on healthcare toward financial sustainability.

The development priorities for the sector include:

  • improving basic and preventive health-care services
  • developing human resources and information systems
  • renovating health service operations
  • developing pharmaceuticals and bio-medical products
  • investing in advanced technology lines to improve domestic production.

The Vietnamese Government is also focused on improving healthcare infrastructure and plans to establish an eHealth Information Exchange platform, in particular telemedicine and shared information database to enable access to rural patients and reduce the costs of expanding healthcare services to rural areas. There is strong support from the government to encourage joint-venture projects between local manufacturers and foreign companies to enable skills and technology transfer in biotechnology and medical devices, shifting away from low-end consumable devices towards production of vaccines and in-vitro diagnostic technology.

Vietnam is highly reliant on pharmaceuticals imports with imported products accounting for around 80 per cent of total hospital pharmaceutical spending. Vietnam’s pharmaceutical market was valued at US$3.81 billion in 2014, an increase of 16.5 per cent from 2013, and double-digit growth is expected to continue towards 2020.

The government also seeks to turn Vietnam into a pharmaceutical production hub. The government has outlined plans to invest US$241 million in eight projects within the local drug manufacturing industry. The government aims to have 80 per cent of domestic demand met by local producers by 2020, up from around 50 per cent currently.

Opportunities

Healthcare services

The healthcare market is dominated by the services sector, which represents more than US$10 billion out of the estimated total market size of US$14.9 billion. The Ministry of Health estimates that available hospital beds would have to increase by 115 to 250 per cent to provide for current demand. A new healthcare law will phase in mandatory health insurance, which will cover 80 to 95 per cent of health expenses (Source: Business Monitor, Vietnam Pharmaceuticals and Healthcare Report, November 2016).

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, October 2012).

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, October 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.

Pharmaceuticals

A large and expanding population, robust economic growth and improved access to healthcare will continue to underpin strong pharmaceutical market growth in Vietnam over the next decade. Another boosting factor to the sector’s development is increased level of foreign investment due to government relaxation of foreign ownership.

Local drug production is weak and incapable of meeting domestic demand. 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 technology transfer and upgrade to meet good manufacturing standards and the establishment of joint ventures with foreign players (Source: Business Monitor, Vietnam Pharmaceuticals and Healthcare Report, November 2016).

Vitamin and nutritional supplements

Vitamins and dietary supplements registered a growth rate at 13 per cent in 2015 (Source: EuroMonitor, May 2015). Vietnam witnessed increasing demand for health supplements as a result of improvement of disposable incomes, living standards, rising consumer awareness about health and wellness, the higher level of environmental pollution as well as the increasingly hectic and stressful pace of modern life in the country especially in the big cities and urban areas such as Ho Chi Minh City and Hanoi.

The majority of Vietnamese consumers still retain the habit of self-medication. This practice is favoured due to the poor management of over-the-counter medication, increasing costs of healthcare services and inadequate clinics / hospital system.

General and combination dietary supplements, especially products for seniors and women are the most popular product category. Paediatric health supplements is also an emerging trend amongst young parents in urban areas like Ho Chi Minh City and Hanoi.

The trend of using vitamins and dietary supplements has increased dramatically in Vietnam and it is leading to a fragmented environment with many different brands and products. Although most Vietnamese consumers tend to use foreign brands, domestic players are more active within herbal/traditional dietary supplements, which is a new trend within consumer health in Vietnam. Private label in Vietnam remains negligible in vitamins and dietary supplements in 2016.

Australian made vitamins and nutritional supplements are well received in Vietnam for quality and effectiveness, however are facing strong pricing competition with other international products and products imported through ‘grey’ channels into the country.

Aged care services

Vietnam is projected to be aging at a very rapid pace. According to UN data in 2015, only seven per cent of the population is aged 65 and older, and by 2040, the number of people of 65+ is projected to almost triple to 18.4 million and account for 15 per cent of the population. The speed of aging in Vietnam is among the fastest countries across the globe, and is happening at a much lower income levels than current countries with an older population. 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).

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 partner, 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.

The speed of demographic transition in Vietnam poses new challenges for the labour market and policy makers in terms of long-term care system and insurance/pension system. There are niche opportunities for Australian suppliers in health delivery model consultation, education/ training and development, as well as in health related information and communications technology. Financial constraints may limit the scope for foreign investors to run nursing homes.

Medical devices

Vietnam’s medical device market is growing steadily with around 92 per cent of medical devices imported, mainly from Japan, United States (US), Singapore and China (Source: Frost & Sullivan 2015). Diagnostic devices, laboratory equipment, and patient monitoring devices are the main products being imported.

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.

Vietnam is potentially a low-cost alternative to China for sourcing and manufacturing of medical devices. Labour costs are lower and domestic Vietnamese medical device manufacturers currently produce low-end products such as medical disposables, hospital furniture, and hospital garments. The Vietnamese Government has initiated a plan to increase local capabilities in biotechnology and medical device manufacturing with ambitions to be able to produce medical devices which are not currently being produced in Vietnam and attract more foreign investments to establish manufacturing facilities in the country.

Digital health technology

At the national level, the Ministry of Health has established goals and broad policies for the development of e-health capacity and capabilities and is currently working on improving required conditions to apply digital health technologies to healthcare services across all levels of the healthcare system. However the Vietnam healthcare system presents a number of issues including low investment in health IT, no standardisation for health data, no unique patient ID, and shortage of health IT human resources which has to date prevented any real progress towards implementation of e-health solutions.

The introduction of health IT in hospitals has been limited to business processes and management systems, with very limited or no use of clinical applications such as electronic health records, order entry systems, decision support, pharmacy systems. This presents opportunities for Australian companies in digital health to collaborate and provide e-health solutions to local healthcare providers.

Competitive environment

The 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 US, 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, Indonesia, Malaysia, Singapore, India and Canada are currently setting up operations or have expressed an interest in establishing facilities. 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.

Domestic pharmaceutical companies focus mainly on generic drugs, with very low expenditure on R&D. This restricts the scope of domestic companies’ operations, forcing them to establish themselves either within Vietnam or through exports.

Tariffs, regulations and customs

Important laws governing healthcare in Vietnam are:

  • The National Assembly of Vietnam adopted a new Law on Pharmacy (105/2016/QH13) on 4 June 2016. The new law will take effect on 1 January 2017, replacing the current version which was passed in 2005. In an effort to update certain aspects of Vietnam’s legal framework to be more in line with international practices, the new pharmaceutical law is expected to provide quicker access to drugs for patients, increased consumer protection, and more incentives for local manufacturing of drugs.
  • Health Insurance Law, No. 25/2008/QH12, 14 Nov 2008 with Decree No. 85/2012/ND-CP, 15 October 2012.
  • Medical Examination and Treatment Law No. 40/2009/QH12, 23 November 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, July 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 Vietnam’s 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 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 fluid. 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 standards

The World Health Organisation (WTO) 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 and Healthcare Report, September 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 device’s 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), manufacturer’s 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.

Tariffs

The maximum rate of 14 per cent is due to decrease to five per cent (including supplements and functional food) in line with Vietnam’s WTO obligations. 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 services

Market entry

The bureaucratic nature of Vietnam’s 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 channels

Most government hospitals procure medical devices through 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, March 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.

Links and industry contacts

Government, business and trade

Australian Self Medication Industry
Complementary Medicine Australia
Department of Vietnam Customs
Drug Administration of Vietnam
Ministry of Health
Therapeutic Goods Administration
Vietnam Association of Functional Foods
Vietnam Pharmaceutical Companies Association

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