Today, as group CEO of IHH Healthcare, one of the largest healthcare groups around, he has to deal with regular tensions with other stakeholders in the healthcare ecosystem. These tensions are stoked by growth in both costs and demand for healthcare services. He believes that hospitals and insurers are not helping themselves if they start to accuse each other. All the finger-pointing would only get patients and consumers worried. “How we deal with it now is to first take it off the front pages,” says Nair, in a recent interview with The Edge Singapore.
However, he is quick to point out that healthcare providers themselves have a responsibility to manage their costs as well, including publicly listed entities like IHH Healthcare, whose largest shareholder is Japanese conglomerate Mitsui & Co, followed by Khazanah Nasional.
According to Nair, one key way he is managing costs — even as inflation is hurting all industries and not just healthcare — is to step up its group procurement activities. For example, when buying expensive new equipment, instead of each hospital ordering on its own, or even each country, IHH’s centralised procurement office would tell the various major brands what is required going forward, and ask them to quote their best “landing price” for each of the IHH markets. Nair is confident that IHH today, given its scale of running around 80 hospitals with 13,000 beds in total, is able to get one of the best prices in the market.
The same logic applies to consumables, too. Pulling data from all hospitals and clinics, IHH knows where to source for the best value supplies. Over the last couple of years, more than US$200 million ($256 million) has been saved. “We are using our size, basically, to work with all our vendors to bring down prices,” says Nair.
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Another way to be more efficient is to standardise clinical practices. Different doctors have different ways of practising. Standard medical procedures could be performed differently by different doctors, which leads to different costs and charges. “It has been proven time and again that the best quality healthcare is not the most expensive healthcare. In other words, it’s not piling on more and more things, it is doing the appropriate thing,” he says.
“If we believe that healthcare costs will continue to rise, we have to take active steps to bring them down, to give value to our patients, to the third-party payers. That’s what we are doing,” adds Nair.
He points out that different markets go through different phases of acceleration in healthcare costs, but the underlying trend is almost certain: demand for healthcare will never come down.
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One key reason, unsurprisingly, is demographics. In Singapore, life expectancy has gone up to around 85, but the quality of life in the last 10 years of a person’s life is typically not optimal. “That’s when the bulk of the healthcare spending takes place, and that’s why we are doing a lot of preventive moves such as Healthier SG,” he points out, referring to a national programme to promote more preventive healthcare and catch conditions, if any.
“In other words, these last 10 years are when an individual is going to tap a lot of healthcare services. It is also when the cost of such services is higher than when they are younger. Conditions like cancer, heart disease, neurology and strokes are going to be more prevalent. So, demographics alone will push up healthcare utilisation,” he says.
Another key reason cited for increasingly higher healthcare costs is the use of more advanced equipment. But from Nair’s perspective, this is something justified. “If you have better technology, you make better diagnosis and better treatment,” he says.
Mount Elizabeth Hospital in Singapore, one of four IHH hospitals here, is the first in Southeast Asia to acquire the Siemens Healthineers NAEOTOM Alpha, a photon-counting CT scanner. According to the manufacturer, this advanced technology allows for sharper, clearer and more detailed images with potentially lower radiation doses compared to conventional CT scans. The clearer images will be beneficial for neurology, where doctors examine nerves, and also orthopaedics, where they look at muscles, says Nair.
Mount Elizabeth Novena, another IHH hospital, bought a proton beam machine to enhance its cancer treatment capabilities. Compared to conventional radiotherapy, which costs $25,000 for a full course of treatment, proton therapy costs more than double that.
Again, the proton beam machine — one of the only handful in Singapore — is something worth the money, says Nair. In conventional radiotherapy, the beam causes damage right from the time it hits the patient’s skin all the way through to the tumour and as it exits, resulting in collateral damage. Proton beam, on the other hand, is so accurate that it goes directly to that tumour, treats it and leaves all the surrounding tissue untouched. “It is very good for children, because they have a long life ahead of them, and you don’t want them to have all kinds of tissue damage,” says Nair.
One sign that this proton therapy machine is not a vanity purchase is the fact that the government has approved its use and that insurers have approved payment for such treatments because there is a clear benefit, unlike some other new equipment. “We have to be responsible to our patients and to the payers to make sure that we deliver value for healthcare. If it’s for bragging rights, I will put a proton CT in all our hospitals, but it can’t be.”
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Healthcare and capital markets
Providing healthcare services is not merely about hospital beds. As part of this growing business, the laboratory portion has become a distinctly growing segment.
The labs can support the requirements of IHH hospitals and clinics. They can also support the demands from doctors outside the IHH system in the various markets, much like how the airport ground-handling subsidiary of a national airline supports other airlines.
IHH Laboratories handled a total of 26 million tests in the first quarter of FY2025 alone. In the last two quarters, 1QFY2025 and 4QFY2024, this unit generated ebitda of more than RM80 million ($24.3 million) and revenue of more than RM400 million for both quarters, a considerable proportion of IHH’s total revenue of RM6.3 billion in 1QFY2025.
Is IHH, perhaps, looking at spinning off the labs as a separate, listed entity of its own? According to Nair, this is a possibility, but not on the cards at the moment. He prefers to keep them in-house, as the provision of lab services is “integral” to the whole healthcare proposition.
In fact, the lab business in India, Agilus Diagnostics, was partly owned by Fortis, IHH’s subsidiary in India, with another third held by private equity. Last year, Fortis paid just over US$200 million to fully own the lab, which is today one of the largest lab businesses in India. “If you IPO it and it goes out of your control, then it becomes like any other laboratory,” Nair adds.
Debates over whether spin-off listings make sense can continue, but the trend of the healthcare industry becoming a domain increasingly controlled by listed entities is ongoing. Healthcare companies, big and small, each marking out their own specialisation, are being formed all the time, often with serious backing. Foundation Healthcare, a newish healthcare group, counts Seatown, a unit of Temasek Holdings, as an investor. CEO Liaw Yit Ming told The Edge Singapore in a recent interview that it is mulling over an IPO within two years, and, logically, it would be on the Singapore Exchange.
Nair explains that Singapore is, in a way, following a similar trend already happening in advanced markets such as the US. Medical conditions today are complex. In the past, doctors would refer patients to another doctor in another clinic, but now they have seen the benefit of practising together, he says. Nair notes that rather than seeing these other healthcare companies as competition, they can be close partners instead, as the specialists practice in clinics located within the various IHH hospitals and tap the facilities.
Competitive dynamics; cluster strategy
At a group-wide level, Nair sees the growing involvement of institutional investors in the healthcare ecosystem as something he has to manage. Nair says the active involvement of private equity (PE) does not affect how IHH runs its operations per se. However, it is a different story when it comes to mergers and acquisitions (M&A), as they might be competing for the same acquisition targets. PE players may have inserted themselves within the healthcare industry, but IHH, as a healthcare operator, brings a certain edge to doing deals.
Nair is making it clear that he will not be tempted to pull the trigger just because a potential target is put before him. For IHH, it applies the eye of not merely an investor, but an existing operator of hospitals when deals are evaluated. For example, what kind of doctors are manning the asset? What kind of expansion potential is there? How are these hospitals run?
Nair says he will not buy just one hospital in a new market and move to the next. There is considerable management time that needs to be invested to justify these moves. “If I’m going into any new country, I must have a country strategy. It must fit into our country strategy, or our cluster strategy,” says Nair, referring to how IHH prefers to operate a cluster of hospitals and related facilities in any given market, instead of just one standalone asset.
That is why Nair believes that IHH’s acquisition of Island Hospital, the largest private hospital in Penang, is justified, given the hefty price tag of RM3.9 billion. The hospital was previously majority held by Affinity Equity Partners and the transacted price implies a trailing EV/Ebitda ratio of 24.6 times as of June 30, a premium of around 20% over other recent deals.
Prior to this acquisition, which was announced last September, IHH already operated 17 hospitals in Malaysia, including two other hospitals in Penang itself: Gleneagles Penang and Pantai Penang. “By buying Island Hospital, it fits into my Penang cluster and my northern Malaysia cluster,” says Nair, referring to the operational efficiencies that can be extracted from operating at a bigger scale, such as procurement.
Nair, claiming to be very familiar with Island Hospital for years, notes that this is an unusual healthcare facility: 60% of its patients are medical tourists. In contrast, medical tourism in Malaysia, excluding Island Hospital, accounts for less than 10% of the patients. He expects the growth of foreign patients at Island Hospital to be “definitely very, very strong”, and help reach clear targets of value accretion as early as the third year of the acquisitions.
In a way, the involvement of private equity works both ways for IHH. On one hand, Nair says IHH is careful to exercise discipline if it faces competing bids from private equity. Yet, PE managers work for their own investors and while their investment horizon can stretch to the medium term, they do need to exit eventually. Many of these assets now held by PE have a ticking clock and the need to exit will land on his desk for his perusal, as was the case with Island Hospital. “We are not cut out of any significant deal that’s happening in the countries we operate. Even in countries where we don’t operate, IHH will be asked to take a look,” he says.
That said, in its bid to grow, IHH is keeping a lookout for new markets to expand into. For now, quite unsurprisingly, they are Indonesia and Vietnam. For Indonesia, its huge population of 300 million is an obvious draw, especially given how an increasing number of people can afford private healthcare. At the same time, the government has shown itself to be very progressive in introducing reforms, such as allowing foreign doctors to practice and Nair is keeping a close watch on the situation.
Vietnam, with the rapid economic growth in recent years, has also reached a certain level of affluence. The Vietnamese are now the second biggest group of foreign patients coming into Singapore after Indonesians. No decision has been made yet, but again, Nair is keeping a close eye. “We will do M&As where it makes sense,” he says.
While there are no immediate acquisition plans, IHH is making sure it has the financial muscle to make a move when it needs to. On Aug 29, it announced it has secured its first sustainability-linked loan of some $300 million with UOB. Nair explains that this is a standby facility — there is no immediate need for this funding. “IHH is in a good place. We do have good cash flows and good debt headroom. We do have standby facilities in various countries in case we need to do something fairly quickly,” he explains. The company, as a whole, has some RM15 billion of standby credit in total with only RM4 billion tapped thus far. “I think it just shows our firepower,” he adds.
In a somewhat similar vein, there are no immediate plans to sell another key property, the Mount Elizabeth Novena hospital, to Parkway Life REIT, which holds the first rights of refusal. This newest hospital in IHH’s Singapore portfolio is listed in IHH’s books as its single most valuable property with a net book value of RM4.53 billion as at Dec 31, 2024. The second most valuable property is Gleneagles Hospital Hong Kong, valued at RM1.89 billion, followed by Mount Elizabeth Orchard at RM1.66 billion. “It is very simple. We have it available as needed, and then we will tap into it. It does not need to be fully sold; it can be partial as well. We don’t need to do it immediately, we will wait and see and there are no plans for now,” says Nair, referring to the arrangement with the REIT.
Mount Elizabeth Novena, IHH Healthcare's newest hospital in Singapore, is carried on its balance sheet at RM4.53 billion, its single most valuable property / Photo: Samuel Isaac Chua
Airbase vs hospital
Now, IHH may be looking across the region for growth opportunities, but even in tiny Singapore, despite the limited space, there is still potential for new developments. Parkway East, tucked in a quiet corner along the all-landed property Telok Kurau Road, has a very neighbourhood feel. Yet, this five-storey hospital, founded in 1942, is not only the oldest private hospital in Singapore, it has built up a “good identity” as a very popular pediatric centre, dealing with children’s emergencies.
However, with just 119 beds, there is a limit to how much Parkway East can contribute to IHH’s business. The space constraint was partly due to height restrictions, as the neighbourhood is under the flight path for military aircraft landing at the air base at Paya Lebar. However, under plans announced by then-prime minister Lee Hsien Loong in 2022, the airbase will be moved by the end of this decade and the whole area redeveloped, and presumably the height limit in areas now under the flight path may be increased.
More recently, in May, then-transport minister, Chee Hong Tat said that as part of a series of pro-business moves, buildings around airports can be built taller from August onwards. “So, if there is an opportunity, we can work with them to see whether we can enhance the GFA [gross floor area] of the hospital,” says Nair. For the moment, IHH is making do with what it can within the existing space, focusing on paediatrics specifically, he adds.
Also, given how IHH is not allowed to build a new hospital from the ground up, it is trying to generate more growth from its existing assets. IHH, as an entity in its present form, is just over a decade old, but three of its four hospitals in Singapore are decades older. All these while, hospitals, by their nature, run around the clock and there is always constant pressure on their systems. Facilities and wards undergo regular upgrading, and at times, extensive works are necessary.
Under a so-named Project Renaissance, IHH, together with Parkway Life REIT, is co-funding $350 million for a major overhaul of Mount Elizabeth Orchard, which is marking half a century in business in a few years’ time.
Nair is happy to note that the three-year overhaul is tracking ahead of schedule. During this time, most of the clinics continue functioning, but the number of beds in operation has to be reduced by as much as half, which has a direct bearing on IHH’s Singapore earnings. This also implies that with the overhaul done, and capacity put back, there will be a pick-up in the second half of the year driven by the hospital, which Nair says is the most famous in Asia Pacific. “We will grow in our existing countries. We still have a lot of capacity for growth,” he adds.
‘Run with our own engine’
Besides the prospects of this eventual pick-up in earnings, in recent months, some of the bullish views towards IHH’s stock stem from the possible IPOs of other healthcare plays, specifically Sunway Medical, which has reportedly hired bankers to help raise RM3 billion in a listing either by the end of this year or next.
Some analysts have suggested that this highly anticipated listing will help lift the overall valuation of the sector, thereby benefiting existing players, including IHH. Nair says: “I believe in running with our own engine, and our fate is in our hands, and we have to make sure of that. If there’s a re-rating, if we do well, if our stock price goes up, it is because of our own efforts. I wouldn’t depend on others if it does happen.”
Amid a broader run of Singapore stocks, IHH’s Singapore-quoted shares are down around 6% year to date; its Bursa-quoted shares are down by around the same level too, giving this stock a P/E ratio of around 25 times.
When asked if IHH’s share price, as it is, is not given the correct valuation by the market, Nair believes so. However, he qualifies by adding that the entire company operates in many different markets, and each of these country entities is given a different valuation. “India is the highest, Singapore next, then we have Malaysia and Turkey, which are in the single digits. We have a multinational group, a kind of holding company and that’s the issue,” he explains.
In contrast, other listed healthcare groups, with operations confined mainly within one market, such as Thailand’s Bumrungrad Hospital Public Company and Singapore’s Raffles Medical Group, are better understood, he says.
However, there are both upsides and downsides from an operations point of view. When things are going fine in the country, they will do well, naturally. However, when the country’s economy is in a downturn, or otherwise, the businesses are conversely hit. For example, in the recent pandemic, many hospitals in various countries were forced to shut down.
In contrast, IHH never had to shut down any of its hospitals. In fact, the IHH hospitals were able to complement the entire country’s network of hospitals — “mix and match” — by dividing up between patients infected by the virus and those who were not.
In the same vein, whenever business in one particular country weakens because of local economic conditions, the impact on IHH’s overall topline and bottomline will be softened by other markets. “We stretch from Amsterdam to Shanghai, and almost every country in between, except for Africa and the Middle East. We are the most risk-diversified healthcare group in the world,” says Nair. “The story now that we are trying to convey is that we are a multinational group. You cannot compare us to single hospital or single country operations.”
Now, this sprawling portfolio is run under multiple local brands ranging from Fortis to Gleneagles to Pantai to Mount Elizabeth. To give a more unified identity while balancing the entrenched mindshare of these local brands, IHH will soon embark on a brand refresh.
Group-wide, Nair is aiming to grow 4,000 beds between 2024 and 2028 and is on track to do so. Instead of merely looking for new hospitals to acquire, which will cost a hefty penny, he is going for so-called “brownfield” expansion by reconfiguring spaces at existing hospitals.
Given how demand is outpacing capacity, healthcare groups are setting up additional spaces by other means, such as ambulatory centres to serve patients who do not require overnight stays. Many orthopaedic procedures, such as partial knee replacements — which sees a growing need because of an ageing population — do not require admission, he says.
Besides Singapore, IHH, facing a similar cap on having another hospital in Hong Kong, is getting around this by setting up a few ambulatory centres too. In short, IHH has a multi-pronged growth strategy, making bold acquisitions where it makes sense, and organic, incremental growth where it needs to work around limitations. The consistent theme is that IHH, under Nair, is keen for further growth despite its considerable heft, and is communicating so to the investors. “So what we wanted to do is to state explicitly what we are doing so that the market, investors and analysts know what we are doing. No surprises, and also not going on a big adventure,” he says.
