Developing World Healthcare Blog

An Unwelcome American Export

We recently spent a fair amount of time analyzing Fullerton Healthcare, a proposed IPO on the Singapore Stock Exchange. It doesn’t fit our criteria for an emerging market company because most of the business is in Singapore, but they have an interesting business model, and are expanding into neighboring emerging markets. The interesting business model has resulted in a bumpy road to public ownership.

A Business Model That’s New to Singapore………..

The company provides third-party administrator (TPA) services and outpatient medical services. The TPA segment’s clients are employers and insurers (largest client is AIA Group). The outpatient medical services segment serves private patients, including some with insurance coverage through the TPA segment’s clients. The structure is a bit analogous to a staff model HMO (think Kaiser Permanente) or a pharmacy benefits manager in the US. The major difference between the US and Singapore contexts is that Singapore has a public system that serves most of the population while a network of private insurers and private providers serve the upper-income (15-20%) segment of the population and expatriates (where Fullerton operates).

The company is the leading TPA in Singapore with a roster of well-known local and multi-national companies. The management team has experience in hospital administration, and several members of senior management have medical training. The company was is expanding outside Singapore, and the initial performance of acquired businesses is good. Several top-tier private equity funds (Singapore’s GIC and China’s CITIC) had agreed to invest in an expansion in mainland China. One could argue about the right valuation, but that’s typically with an IPO.

…………And Controversial Too

As the company started its roadshow, negative stories appeared the in Singapore press. The articles focused on physicians’ complaints about TPAs, and Fullerton in particular. Doctors were complaining about the terms (fees, etc.) of inclusion in the company’s panels of providers, and incentives/pressures to refer patients to Fullerton-owned specialist practices (instead of the “best doctors”). The roadshow continued; the deal price at the low end of the range; and then the Monetary Authority of Singapore (MAS) delayed approval of the deal in response to letters received from parties questioning the company’s business model……………………………… 

“Hate Mail” Gives the Regulators Pause

We thought the delay was a bit curious considering that MAS had approved a debt offering by Fullerton in late June, and that very little had changed since then. Our suspicion is that physicians sent “hate mail” to MAS about the company. We also suspect that physicians engaged in an organized campaign to stir up the negative press. The conflict of interest issues mentioned earlier are of legitimate concern, but ring hollow in one of the few countries where physicians can prescribe AND dispense medications (a standing expat joke is that a check-up for a cold results in five prescriptions), and pricing (which is opaque) is a function of the patient’s perceived income. In fact, one physician billed a member of the Sultan of Brunei’s family S$24 million (US$17 million) for breast cancer treatment.  The Singapore Medical Council suspended her license for three years.

We’ve Seen This Film Before

The suspension of an IPO is a serious matter, but we think that there will be a resolution that allows the company to go public. The conflicts between doctors and the company echo the initial struggles between doctors and health insurers when managed care became more prominent in the US in the early 1990’s. The arguments were similar as were the tactics in some cases. In the end, the health plans (which made mistakes along the way) had enough support from employers, governments, and other payers that doctors ultimately accepted the changes.  Singapore and other Asian countries must find ways to level the playing field for the relevant constituencies, but we think that they will make room for some form of medical management to take hold in their private healthcare systems.